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2025/2026 Trading Comps Modeling Exam Wall Street Prep / Wall Street Prep Premium Exam Transaction Comps Modeling Wall Street Prep Exam GRADED A+ SS vowntoan the terminal value ofa business that grows indefinitely is calculated as follows - VV VANSWER-cash flow from period "t+1" divided by (discountrate-growth rate) the two-stage DCF modelis: - VV V ANSWER-where stage 1 is an explicit projection offreecash flows (generally for5-10years), and million over the same period. the cash impact ofthe changein working capital was - VV V ANSWER-a decrease of 15 million the final component ofan earnings projection modelis calculating interestexpense. thecalculationmay create acircular reference because - VV V ANSWER- interest expense affects netincome, which affects FCF, which affects the amountofdebta company pays down, which, in turn affects theinterest expense, hence the circular reference a 10-q financial filing has all of the following characteristics except - V VV ANSWER-issued four times year. Depreciation Expense foundin theSGCA line ofthe income statementfora manufacturing firm would most likely be attributable to which of the following - V VV ANSWER-computers used by the accounting department Ifacompany has projectedrevenues of $ 1 0billion, a gross profit margin of 65%, and projected SGCA expenses of $2billion, whatis the company's operating (EBIT) margin? - VV VANSWER-45% A company has the following information, 1. 2014 revenues of $5 billion,2013 Accounts receivable of $400 million, 2014 accounts receivable of $600 million, what arethedays sales outstanding - VV VANSWER- 36.5 Acompanyhas the followinginformation: * 2014 Revenues of $8 billion * 2014COGS of $5 billion * 2013 Accounts receivable of $400 million * 2014 Accounts receivable of $600 million ¢ 2013 Inventories of $1 billion * 2014 Inventories of $800 million * 2013 Accounts payable of $250 million * 2014 Accounts payable of $300 million Whatare the inventory days forthe company? - V V VW ANSWER-65.7 days Whichof the followingis true - V V V ANSWER-Coca Cola'sbrand nameisnot reflectedas an intangible asset on its balance sheet Acompanyhas the followinginformation: * 2014 sharerepurchase plan of $4 billion + Average share price of $60for the year 2013 + Expected EPS growth for 2014 of 10% What should the number ofsharesrepurchasedby the companybe in your financial model? - / VV ANSWER-60.6 million Adebtholder wouldbe primarily concerned with which of the following multiples? |, Enterprise (Transaction) Value / EBITDA ||. Price/Earnings Ill. Enterprise (Transaction) Value/ Sales - VV V ANSWER-1 and 3 only OnJanuary 1,2014,shares of Company X tradeat $6.50 pershare, with 400 million shares outstanding, Thecompany has net debt of $300 million. After building an earnings model for Company X, you have projected free cash flow for each year through 2020asfollows: Year 2014 20152016 2017 2018 2019 2020 Free Cash Flow 110 120150 170200 250280 Youestimatethat the weighted average cost ofcapital (W ACC) for Company X is 10% and assume that free cash flows grow in perpetuity at3.0% annually beyond 2020, thefinal projected year. Estimatethepresentvalueof the projected freecash flows through 2020, discounted at the stated WACC, Assume all cash flows are generated at the end of the year (i.e., nomid-year adjustment): - VV VANSWER-837 million OnJanuary 1, 2014, shares of CompanyX tradeat $6.50 per share, with 400million shares outstanding. The company has net debt of $300 million. After buildingan earnings model for Company X, you have projected free cashflow foreach year through2014asfollows: Year 2014 20152016 2017 2018 2019 2020 Free Cash Flow 110 120150 170200 250280 Youestimate that the weighted average cost of capital (W ACC) for Company X is 10% and assume that free cash flows growin perpetuity at 3.0% annually beyond 2020, the final projected year. Calculate Company X's implied Enterprise Value by using the discounted cash flowmethod: - VV V ANSWER-2951.2 million OnJanuary 1, 2014, shares of CompanyX tradeat $6.50 per share, with 400million shares outstanding. The company has net debt of $300 million. After buildingan earnings model for Company X, you have projected free cashflow foreach year through2014asfollows: Year 2014 20152016 2017 2018 2019 2020 Free Cash Flow 110 120150 170200 250280 * Nopremiumis offered to the currenttarget share price « Acquirer share price at announcementis $30 + Target share price atannouncementis $50 * Acquirer EPS next year is $3.00 TargetEPSnextyearis $2.00 ¢ Acquirer has 4 thousand shares outstanding + Target has 2 thousand shares outstanding Whatis the exchangeratio for the deal? - / VV ANSWER-1.7x + Acquirer purchases 100% of target by issuing additional stockto purchase target shares * Nopremiumis offered to the currenttarget share price ¢ Acquirer share price at announcementis $30 + Target share price atannouncementis $50 ¢ Acquirer EPS next year is $3.00 * TargetEPSnextyearis $2.00 ¢ Acquirer has 4 thousand shares outstanding + Target has 2 thousand shares outstanding Assuming a 40% tax rate, whatare the necessary pre-tax synergies needed to break-even? - V/V J ANSWER- Pushdown accounting:- V VV ANSWER-Refers to the establishment ofa new accounting and reporting basisin an acquired company’s separate financial statements Use the following information to answer the question below:+ Acquirer purchases 100% of target by issuing $100 millionin new debtto purchase target shares, carryingan interestrateof10% + Excess cashis used to help pay for the acquisition « Acquirer expects tobe able to close down several of the target company's old manufacturing facilities and save an estimated $2 millionin the firstyear + Target PPCEis written up by $25 million to fairmarketvalue ¢ Investmentbankers, accountants, and consultants on the deal earned $30millionin fees Which of the following adjustments wouldbe made to the pro forma income statement? - V V V ANSWER- Advisory fee expense of $30 million Depreciation expense increase due to PPCE write-up Pre-tax synergies of $2 million Use the following information to answer the question below: + Acquisition takes placeon July 1, 2013 ¢ Acquirer FYE - June 30 year is to:- VV V ANSWER-Use an Enterprise Value/Sales multiple to find Enterprise Value andthen subtract net debt Usean Enterprise Value/EBITDA multiple to find Enterprise Value and then subtractnet debt Usea Price/Earnings multiple to find Equity Value Under recapitalization accounting - V V V ANSWER-The purchase priceis reflected as areductiontoequity which ofthe followingis true about seniordebt - V V V ANSWER- None of the Below. Has the least restrictive covenantsbecause itis securedby the company’s assets Sinceitis secured by the company’s assets, lenders prefer to have thedebt outstanding over timein order to generate moreinterest Usually uses PIK securities or come with warrantslike mezzanine debt On December 30, 2013: * Company ¥ trades at $L0pershare ¢ Enterprise Value/ EBITDA multipleof5.0x + Leverage ratio of 0.6x (Net debt/EBITDA) * 2013 EBITDA = $2.0billion ¢ Assume no cash on company Y's balance sheet On December 31,2013: * Company Y undergoes an LBO and isrecapitalized ¢ Thecompany’s new leverageratio becomes 5.0x * Financial sponsorexit is planned for Year 5. Assume that the EV/ EBITDA multipleat exit yearisthe same asthe currentmultiple. * Required rate ofreturn is 25% + Exityear EBITDA projected to be $3.0 billion + The company’'syear-end leverage ratiois 1.6x Whatis theinitial Equity Value? - V/V V ANSWER-8.8billion On December 30, 2013: * Company ¥ trades at $L0pershare + Enterprise Value/ EBITDA multipleof5.0x + Leverage ratio of 0.6x (Net debt/EBITDA) * 2013 EBITDA = $2.0billion « Assume no cash on company Y's balance sheet On December 31,2013: * Company Y undergoes anLBO andisrecapitalized ¢ Thecompany’s new leverageratio becomes 5.0x ¢ Financial sponsor exit is planned for Year 5. Assume thatthe EV/ * Required rate ofreturn is 25% + Exityear EBITDA projected to be $3.0 billion + The company’'syear-end leverage ratiois 1.6x Howmuchdebtispaid downby the exityear (since the LBO announcement)? - VV VANSWER-5.2 billion On December 30, 2013: * Company ¥ trades at $L0pershare + Enterprise Value/ EBITDA multipleof5.0x + Leverage ratio of 0.6x (Net debt/EBITDA) * 2013 EBITDA = $2.0billion « Assume no cash on company Y's balance sheet On December 31,2013: * Company Y undergoes anLBO andisrecapitalized ¢ Thecompany’s new leverageratio becomes 5.0x + Financial sponsorexit is planned for Year 5. Assume that the EV/ EBITDA multipleat exit yearisthe same asthe currentmultiple. * Required rate ofreturn is 25% ¢ Exityear EBITDA projected to be $3.0 billion ¢ The company’s year-end leverage ratiois 1.6x Whatis the initial equity necessary to achieve therate ofreturn requiredby the financial sponsors ?- V VV ANSWER-3.34 billion Company A shares are currently trading at $20 per share. A survey of Wall Street analysts reveals that EPS expectations for Company A for the full year 2014 are $1.50 per share. Company A has 200 milliondiluted shares outstanding. Company A's major competitors are trading at an average share price/ 2014 Expected EPS of 15.0x. Using the comparable company analysis valuation method, Company A shares are:- VV J ANSWER-2.5 per share undervalued When looking to do a transaction comp analysis, some of the merger-related filingsthat shouldbe lookedatincludeeach ofthe following except: - V VV ANSWER-Form s-1 when determining valuefor a company based on transactionrather than trading comps, one ofthe key differences that will affect the valueis - VV V ANSWER- premium paid for control of the business Garth's Micro Brewery, whose shares are currently trading at $40 per share, is considering acquiring Wayne's Beer Bottling Co. You havecompileda group ofcomparable transactions within the beer bottling space and have calculated thatsince 2014, acquisitions similar(or comparable!) to theone Garth's iscurrently considering have hadtransaction values (offer value of target plus any target debt, net of cash) thatare, onaverage, 8.0xtarget's 
