Project Marridge — 2-Hour From-Blank: 3-Statement, DCF & LBO
A 2-hour Full Modeling Test (3-Statement + DCF + LBO) case study with a complete model answer
Modeled After
KKR
The vanilla private equity test KKR is reported to set: recreate from a blank spreadsheet a five-year three-statement model, then a five-year discounted cash flow at a stated WACC and forward terminal multiple, then a leveraged buyout analysis returning three, four and five year returns with a credit analysis — with proper formatting named explicitly as a grading criterion.
Structure and exercise format are modeled after KKR — the modeling test the firm is reported to set. The company, the financials and every figure in this case are entirely our own.
The Situation
Marridge Consumer Products, Inc. is a US branded household and personal care products company — laundry additives, surface cleaners and a value-tier personal wash line — sold through grocery, club and e-commerce.
Marridge Consumer Products, Inc.
- Sector
- Consumer staples — branded household and personal care products: laundry additives, surface cleaners and a value-tier personal wash line, sold through grocery, club and e-commerce
- Size
- Geography
- United States
- Ownership
- Situation
The Prompt
You are a candidate sitting a two-hour proctored modeling test at a private equity firm's offices. A laptop is placed in front of you with an EMPTY spreadsheet open on it, alongside a one-page information package.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 120 minutes.
PART 1
Assumptions — read it, do not type in it
PART 2
Income statement — five projected years, standalone
PART 3
Balance sheet — five projected years, both rollforwards, a check row a year
PART 4
Cash flow statement — net income to the change in cash
PART 5
Discounted cash flow — unlevered, with a FORWARD terminal multiple
PART 6
Buyout — entry valuation, seven turns and sources and uses
PART 7
Debt schedule — the sweep pool, four rollforwards and the credit statistics
PART 8
Returns — three exits, the attribution bridge and the inversion
PART 9
Cover — the three typed answers, and the assumptions you made
Attempt It First
Blank modelling template
The answer model with every produced cell cleared — the shell you build your attempt in. Work it in Excel against the clock, then check yourself against the model answer below.
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished Excel model is in the solution set below.
- 0 – 10 min
read the page, and turn three sentences into three formulas
- 10 – 35 min
the income statement
- 35 – 55 min
the balance sheet, and both rollforwards
- 55 – 70 min
the cash flow statement, then close the loop
- 70 – 85 min
the discounted cash flow
- 85 – 100 min
the buyout and the debt schedule
- 100 – 120 min
returns, the bridge, and the three answers
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Margins stated in words, not in numbers
Nothing on the given page says what the FY2029E gross margin is. It says gross margin declines ratably to a stated terminal margin in equal annual steps, that selling, general and administrative expense holds constant as a percentage of revenue, and that capital expenditure declines ratably to a stated terminal percentage. Each has to become a formula that references the prior year and the stated anchor. Type the margins in and you get the same numbers and a model that cannot be re-run at a different terminal margin — which is most of what a model is for, and what the archetype exists to test.
Revenue compounding while margin declines
The channel mix that drives the growth is the same mix that drags the gross margin, so both move at once and in opposite directions. Adj. EBITDA therefore grows a good deal more slowly than the top line, and every one of the three answers moves materially if you hold the margin flat while letting the revenue compound. Say out loud why the two are linked rather than treating the margin walk as an arbitrary haircut: a reader who sees the connection stated will believe the rest of the model.
A FORWARD terminal multiple applies to the year after the projection
A terminal value struck on a forward multiple takes the multiple on the earnings of the year following the last projected year, and discounts that value at the last projected year's factor. That means carrying one extra column the model shows nowhere else: revenue grows at the stated terminal rate and the last projected margin is held. Taking the multiple on the final projected year instead understates enterprise value by a full year of growth. It is the most common single error on this exercise, and it is invisible in a file that otherwise looks finished.
Stock-based compensation charged once, and only once
The compensation is reported inside selling, general and administrative expense, so Adj. EBITDA is stated after it and there is no add-back anywhere. Unlevered free cash flow therefore already carries the cost, and the equity value is divided by the share count as it stands at the valuation date rather than by a fully diluted count. Charging the expense AND the future dilution takes the same cost twice; charging neither is the error a buyside reader finds first. The dilution the plan does create is carried in the share count rollforward, where the repurchase more than offsets it.
Two rollforwards the balance sheet depends on
The share count rollforward is the denominator of the first answer, and the repurchase line in it is a dollar budget divided by an average price rather than a share count you are handed — which is why the buyback shrinks the count faster than the employee plans grow it. The stockholders' equity rollforward is what makes the balance sheet close: net income, the stock compensation credit, the employee-plan proceeds, the dividend and the repurchase spend. Neither is optional, and a model that runs them as memo lines rather than as the drivers of the balance sheet will balance for the wrong reason.
Shareholder returns stop at close
The dividend, the repurchase program and the employee-plan issuance all belong to the standalone company. They do not exist in any year of the buyout, which is why the same operating plan produces two very different cash flow profiles and why the levered structure can carry turns of leverage the public company would not have supported. Carrying the standalone financing lines into the buyout tabs leaves a workbook that runs and answers a different question.
A sweep that respects the documented order
Strike the sweep budget once, at the top, and allocate it down the tranches in the order the term sheet's sweep-order column gives. A tranche with a sweep order of zero is not callable and is never reached at all — it should have no sweep row, rather than one that returns zero. Getting the order wrong changes the balances and the interest bill in every subsequent year, because the tranches carry different coupons. Write the cascade once and let the paper decide where the money goes.
A PIK strip compounds whether or not the business does
A tranche that pays its whole coupon in kind accrues on its beginning balance, capitalizes at year end, and is the one instrument in the structure whose principal rises over the hold. It is never swept and never amortizes. That has a consequence worth working out before you assume a longer hold is worth more: the multiple of invested capital and the internal rate of return do not have to move in the same direction as the hold lengthens, and if they do not, the tranche that explains it is on the term sheet.
Interest on beginning-of-period balances
Compute interest on the balance at the start of the year, and interest income on the prior year's closing cash, and the model has no circularity: nothing refers to itself and iterative calculation never goes on. Average-balance interest is the market convention and is more precise, but it makes the file circular, and a circular file can settle on a wrong answer without warning when somebody edits a formula. The directions here choose the fix that removes it, and saying out loud that you know why the convention was chosen is worth more than the convention.
No NPV, IRR, XNPV or XIRR
A discount factor is one over one plus the cost of capital to the power of the period, written out. A return is exit over invested to the power of one over the hold, less one. Beyond the ban being stated, the written-out form is the only one that fills right across three different hold periods in three adjacent columns, which is exactly what the third deliverable asks for. Functions that take a range cannot be filled that way and will send you back to retyping.
Fees funded at close buy no enterprise
Transaction expenses and capitalized financing fees are funded by the sponsor at close, and neither buys any part of the business. That is why the sponsor's equity contribution is larger than enterprise value less net debt, and why the returns attribution has to open with them as a negative component. A bridge that leaves them out cannot close on the equity gain, and the check row will say so.
What could you pay, as a closed form
'What is the return?' and 'what would you pay?' are different questions, and the second converts a readout into a negotiating position. Here the debt is sized on turns of FY2026A Adj. EBITDA rather than on a share of the purchase price, so nothing in the debt schedule moves when the entry multiple does — the exit equity value is fixed, and only the sponsor's contribution flexes. Discount the exit equity value back at the target return and the required contribution falls straight out, and the price with it. That is one rearrangement, not a goal seek, and it is faster and more defensible than searching for it.
Formatting is graded because there is no template
Blue for a hardcoded input, black for a formula on the same tab, green for a pure link to another tab. On a blank sheet you are also authoring every row label, every section band and every number format, and none of that is optional: a model nobody else can read is a model nobody else can check. One related habit pays for itself repeatedly here — pin references to single-cell assumptions with dollar signs, or the row you meant to fill right walks onto empty cells in every column but the first.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: Excel model, built the way a banker would actually build it. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Building three statements from a blank spreadsheet
- —Margin trajectory interpretation
- —Five-year DCF with a forward terminal multiple
- —Seven-turn multi-tranche structure with PIK
- —Share count and stockholders' equity rollforwards
- —Three, four and five year returns
- —Credit statistics
- —Excel formatting as a graded criterion
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the Excel model and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Project Marridge — 2-Hour From-Blank: 3-Statement, DCF & LBO
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What exactly do I hand in?
The completed workbook and three typed answers in the shaded cells on the Cover tab you built. That is the entire deliverable — no memo, no deck, no presentation and nothing to talk through afterward. Everything you want credit for has to be visible in the file, which is why the directions also ask you to write down any assumption you made for something the information package did not provide.
In what order should I build it?
The three-statement model first, then the discounted cash flow, then the buyout. That is also the order the deliverables are listed in, and on this exercise that is not a coincidence: both valuations run off the same operating plan, so neither can be started until it closes. Candidates who jump to the buyout because it feels like the real question end up building the operating plan twice and finishing neither.
The margins are not given as numbers. What am I supposed to do?
Turn each sentence into a formula. 'Declines ratably to the terminal margin in equal annual steps' means each projected year moves one fifth of the way from the FY2026A level — which you compute from the reported income statement, since it is not printed — to the stated terminal margin. 'Held constant as a percentage of net revenue' means the dollar amount grows with the top line while the margin it consumes does not move. Cost of goods sold is then the residual of revenue and the gross margin row, not a driver in its own right.
What does a FORWARD terminal multiple actually mean here?
That the multiple applies to the Adj. EBITDA of the year after the last projected year, not to the last projected year itself. So you carry revenue one column further at the stated terminal growth rate, hold the last projected margin, take the multiple on that earnings figure, and discount the result at the last projected year's discount factor. Taking it on the final projected year understates enterprise value by a full year of growth, and nothing in the file will flag it.
Should I add stock-based compensation back?
No. It is reported inside selling, general and administrative expense, so Adj. EBITDA is already stated after it and there is nothing to add back. That is a choice with a consequence you should state: because the expense is charged, the equity value is divided by the share count as it stands at the valuation date rather than by a fully diluted count. Charging the expense and the dilution both would take the same cost twice.
Interest on average or beginning balances?
Beginning, on every tranche, and interest income on the prior year's closing cash. The directions say so explicitly and add an instruction not to switch on iterative calculation. Average-balance interest is the market convention and is more precise, but it makes the file circular; beginning balances remove the circularity, which is what lets every check row in the file be trusted. If you normally build it the other way, say so on the tab.
My balance sheet does not close. Where do I look first?
Look at the pattern before you look at the formulas. Off by the same amount in every year means it came out of the opening balances or a line you held constant that should roll. Off in one year only means it is that year's flow, and the usual culprits are a non-cash charge added back on one statement but not the other, working capital computed on a parallel schedule rather than read off the balance sheet, or the stock compensation credit missing from the equity rollforward.
Do the dividend and the buyback belong in the buyout?
No. That is why they are in the case. All three shareholder-return lines belong to the standalone company and stop at close, so every dollar of free cash flow after the buyout is available to the lenders instead. Decide what that does to the cash available relative to the standalone build you have just finished, and make sure the two sets of tabs do not carry the same financing lines.
How should I read the sweep-order column on the term sheet?
As the thing that decides which balances can move at all. Strike the sweep budget once, at the top, then allocate it down the tranches in the order that column gives. A tranche with a sweep order of zero is not callable and is never reached, so it should carry no sweep row rather than one that returns zero — an explicit row that always evaluates to nothing reads as an accident to whoever opens the file next.
How do I answer the third question without searching for it?
Work out what the entry multiple actually changes. Because the debt is sized on turns of FY2026A Adj. EBITDA rather than on a share of the purchase price, the whole debt schedule, the exit enterprise value and the exit net debt are all unchanged when the entry multiple moves. Only the purchase price and the sponsor's contribution flex. So discount the exit equity value back at the target return, and the contribution that clears it — and the price that produces it — fall out of one rearrangement. Write the algebra and invert it.
How much does formatting really matter with no template?
More than on any other exercise in this family, and the directions say so. There is nothing to inherit a convention from, so the convention is yours to impose: blue for a hardcoded input, black for a formula on the same tab, green for a pure link across tabs. A hardcoded number buried inside a formula is marked down even when it is right. Budget the formatting into the build rather than promising yourself a pass at the end — on a two-hour blank-sheet test, there is no pass at the end.
What if I am running out of time?
Type the three Cover answers before you do anything else, and write down your assumptions second — together they are a third of the deliverable and take a couple of minutes once the returns tab computes. After that, cut the attribution bridge before you cut anything that ties, and cut the credit statistics before you cut a check row. A model that closes, with answers on the front of it, beats a fuller model whose owner cannot say why the numbers are what they are.
Does this format still come up?
It is the vanilla version of the private equity modeling test — the one firms use when they want to see whether a candidate can build rather than fill in. The blank spreadsheet is doing the work here: a labeled shell tells an interviewer whether you can write formulas, and an empty one tells them whether you know what a model is supposed to look like. A three-statement model either closes in every year or it does not, and thirty seconds of scrolling tells them which.
About This Full Modeling Test (3-Statement + DCF + LBO) Case Study
Full Modeling Test (3-Statement + DCF + LBO) case study for private equity interviews. 120-minute format covering building three statements from a blank spreadsheet, margin trajectory interpretation, five-year dcf with a forward terminal multiple. Includes the full prompt, a tied-out Excel model and an audio walkthrough.
This case study sits in Private Equity, under LBO Modeling Tests. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
120-Minute Format
The time limit a real assessment would give you
Excel Model
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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