LBO Exam - Is any deviation from correct answer acceptable?

I'm currently prepping for a modeling test in a few weeks using a course. The logic within this course and models makes sense, but when I tried to apply the format I learned to another modeling test (passed along from a friend), I came up with a slightly different answer, an IRR of 23.77% as opposed to the answer key (which was formatted very differently than my course's models) which had 23.89%. I guess my main question is whether most firms are looking for an exact number or whether they want to make sure you understand the logic of it. Should I dig into this to ensure my answer on the real thing is exact, or should I move onto other practice tests?

Comments (11)

1mo 
dumbanalyst1234, what's your opinion? Comment below:

Officehours is probably wrong. They stink

  • 1
Most Helpful
1mo 
kindheartedconsultant, what's your opinion? Comment below:

The time that everything should be the exact same is if you're given all the information up front and asked to make no deviations from it, e.g., if you know the revenue, the growth rate, the date of exit/entry, EBITDA margin, all cash flow adjustments, then it should be the same. However, if you're making any assumptions at all on growth, on term loan interest rates, really anything at all, then you can expect differences.

When we've given modeling tests it's never been about "is this the right number," it's always been "Is that number within the right percentage points we're looking for, and does the candidate understand what they mean in context." I care less about 23.79% vs 24%, and more about what you think about those numbers, and the risks involved, if you think the business is worth the assumptions you're inputting, etc. 

The model is never, EVER the end-all-be-all in these interviews. It is simply and explicitly the platform by which you have a conversation about an investment, a common meeting place so that you can demonstrate your investment acumen (investment, not model) in a standardized way. Treat it like that and you'll do better.

I owe my VP all of my progression and investment acumen, and he gave me a piece of advice that I've taken to heart and built around. He said, "You're a highly compensated investment professional, and you're paid to have an opinion. You need to voice what you think." Same thing here--if I had two candidates, and one was off by a few percentage points in the model but spoke and acted like an investment professional, and the other one was perfect in modeling but couldn't get his head out of his Macabacus macros, I'd hire the first person, no hesitation.

Hope that's helpful!

Remember, always be kind-hearted.
  • 10
  • Analyst 1 in IB - Gen
1mo 

Thanks, this is definitely helpful.

  • Associate 1 in PE - LBOs
1mo 

Can you share other helpful advice the VP bestowed upon you over your career? As a first time Associate working directly with busy Partners I wish i had someone slightly more senior to me who could help out with stuff like this. Thank you!

  • Associate 3 in IB-M&A
1mo 

That type of difference is completely immaterial in a 3hr test. If you're within the range you're fine (which is just a "reasonable" range - I would question an 80% IRR, but for this type of test anything 20-28% is totally fine, even higher/lower if you had specific growth or model assumptions you can explain)

It's much more important that you're able to talk through it. You also usually come up with your own assumptions in a real test, so they certainly won't have an exact number they are looking for. Even if they do, that tiny rounding difference is not material on a model test

  • Intern in IB - Cov
1mo 

R u srs? Man, we are talking about a < .15% difference

1mo 
kindheartedconsultant, what's your opinion? Comment below:

R u srs? Man, we are talking about a < .15% difference

Thank you Intern, very helpful.

Remember, always be kind-hearted.
  • 1
1mo 
chihayafull, what's your opinion? Comment below:

Along with the above around the qualitative discussion around assumptions, just make sure the model itself is correct.

typically they have associates F2'ing through the formulas to make sure you're not like adding taxes to cashflow, etc. So the only "correctness" is ensuring that your model is doing math right and isn't heinously busted. 

1mo 
teddybear2, what's your opinion? Comment below:

The first thing they check is the answer. If it's not correct they're not going to go through your model and give partial credit. This ain't college.

1mo 
chihayafull, what's your opinion? Comment below:

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