Question
Two answers required. The ratio between these two quantities is aimed to be necessarily greater than 1 and usually around 2 when creating an LBO, or leveraged buyout, model. For 10 points each:
[10m] Name these two quantities. The Modigliani-Miller theorem states that the enterprise value of a firm is unaffected by its value of the ratio of these two quantities, which is why it demonstrates capital structure irrelevance.
ANSWER: debt AND equity [accept the debt-equity ratio; accept debt investment or debt finance for debt; accept liabilities for debt; accept equity investment or equity finance for equity; accept assets minus liabilities for equity; prompt on D over E; prompt on capital for equity; prompt on partial answers]
[10e] In an LBO model, the investing firm generally aims for a minimum of 20% for the “internal” type of this quantity. This quantity, equal to final value minus initial value over initial value, measures the net gain of an investment.
ANSWER: rate of return [or RoR; accept internal rate of return or IRR; accept returns; accept return on investment or ROI]
[10h] LBO models generally aim to maximize the internal rate of return and this quantity, which is equal to EBIT or EBITDA over interest expenses. This quantity is how easily a company can pay interest on its outstanding debt.
ANSWER: interest coverage ratio [or ICR; accept times interest earned or TIE]
<Social Science - Social Science - Economics>
Summary
| 2024 ARGOS @ Brandeis | 03/22/2025 | Y | 3 | 10.00 | 100% | 0% | 0% |
| 2024 ARGOS @ Christ's College | 12/14/2024 | Y | 3 | 6.67 | 67% | 0% | 0% |
| 2024 ARGOS @ Stanford | 02/22/2025 | Y | 3 | 10.00 | 67% | 33% | 0% |
| 2024 ARGOS Online | 03/22/2025 | Y | 3 | 13.33 | 67% | 33% | 33% |
Data
| Stanford+ | Cry of the Common Loon | 10 | 0 | 0 | 10 |
| Where are the ACF Nationals recordings? | A is for Amy Robsart who fell down the stairs | 0 | 10 | 0 | 10 |
| Berkeley | number of tang poems = 75 times number of lines in a shi = 100 times number of lines in a haiku | 0 | 10 | 0 | 10 |