Using the MoIC-to-IRR approximation, roughly what IRR corresponds to a 2.5x MoIC over 5 years? A 2.0x MoIC over 3 years?

What interviewers are really testing

A paper LBO interview is a stress test of understanding, not calculation speed. Interviewers are watching for three things.

1. Can you set up the problem without being spoon-fed? The strongest candidates ask sharp, minimal clarifying questions upfront (entry multiple, leverage, growth, a FCF simplification, exit multiple/hold) then stop asking and start computing. Weak candidates either barrel ahead with unstated assumptions or ask so many questions it looks like stalling.

2. Do you narrate the logic, not just the numbers? Saying "entry equity is uses minus debt, so $600M minus $400M is $200M: that's the sponsor's check" as you go is far stronger than silently writing figures and announcing an answer at the end. Interviewers are grading the process live, and a wrong final number with a clean, correctly-reasoned process usually scores better than a right number reached by luck.

3. Do you sanity-check the outputs? After computing MoIC and IRR, a strong candidate glances at the result and says something like "a 2.3x over 5 years, call it just under 20% IRR: that's a solid but not extraordinary base-rate PE return," showing the MoIC-to-IRR table is memorized cold and the number is being checked against real-world PE return expectations (typically 20-25% target IRR, 2-3x MoIC over a 4-6 year hold), not just spat out.

The elite differentiator is speed with composure: doing this in under 5 minutes while talking through it calmly, catching your own arithmetic slips, and rounding sensibly rather than chasing false precision to the decimal.

Common traps

Trap 1: Forgetting fees and assuming Uses = Sources trivially. Candidates compute purchase EV and jump straight to "debt plus equity equals that," skipping that Uses may include transaction fees and that Sources may include revolver draws or seller notes if given.

Say it out loud: "Uses is the purchase price plus any fees the interviewer specifies: if none are given I'll assume none for simplicity. Sources is debt plus the equity check, so equity is just the plug: Uses minus debt."

Trap 2: Building a full debt schedule when a simplification was intended. Some candidates try to model mandatory amortization, a cash sweep waterfall, and multiple tranches inside a 5-minute paper LBO, running out of time before reaching the exit calculation.

Say it out loud: "For a paper LBO I'll simplify the debt paydown to a single free cash flow assumption applied each year rather than building a full schedule: that keeps this tractable by hand while preserving the mechanics that matter for the answer."

Trap 3: Letting debt go negative. If cumulative FCF over the hold exceeds the entry debt balance, naively subtracting produces negative debt, which is nonsensical: debt paid off is done, and anything beyond that is cash on the balance sheet.

Say it out loud: "Once cumulative free cash flow exceeds the entry debt, I floor debt at zero and the excess becomes cash, which still nets against enterprise value to get to equity value, so the numbers stay consistent."

Trap 4: Computing IRR by trying to take a literal nth root under time pressure. Attempting exact IRR math live wastes time and usually still produces a wrong number.

Say it out loud: "I don't have a calculator, so I'll use the MoIC-to-IRR approximation: roughly, 2x over 5 years is about 15%, 2.5x is about 20%, 3x is about 25%. This MoIC of about 2.4x over 5 years puts us around 19-20%."

Trap 5: Ignoring that exit multiple ≠ entry multiple unless stated. Candidates default to assuming no multiple change without confirming, then get caught flat-footed when the interviewer says "actually, assume you exit a turn lower."

Say it out loud: "Unless told otherwise I'll assume the exit multiple equals the entry multiple (no multiple expansion or contraction) but let me confirm that's the assumption you want."

Trap 6: Not narrating and just presenting a final number. Silent number-crunching denies the interviewer the chance to see (and credit) correct reasoning, and denies you the chance to catch an error before it compounds.

Say it out loud: "I'll talk through each step as I go so you can follow the logic and flag anything I should adjust."