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Download TRANSACTION COMPS MODELLING WALL STREET PREP|| EXAM NEWEST 2025 ACTUAL EXAM ALL 50 QUESTIO and more Exams Nursing in PDF only on Docsity!
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TRANSACTION COMPS MODELLING WALL STREET PREP|| EXAM NEWEST 2025 ACTUAL EXAM ALL 50 QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES|| ALREADY GRADED A+ PDF DOWNLOAD Ifa company has projected revenues of $10 billion, a gross profit margin of 65%, and projected SG&A expenses of $2billion, what is the company's operating (EBIT) margin? - ANSWER: 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 are the days sales outstanding - ANSWER: 36.5 A company has the following information: . 2014 Revenues of $8 billion . 2014 COGS 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 What are the inventory days for the company ? - ANSWER: 65.7 days in order to find out how much cash is available to pay down short term debt, such as revolving credit line, you must take - ANSWER: beginning cash balance + pre- debt cash flows - min. cash balance - required principal payments of LT and other debt to calculate interest expense in the future, you should do which of the following - ANSWER: apply a weighted average interest rate times the average debt balance over the course of the year enterprise (transaction) value represents the: - ANSWER: value of all capital invested in a business A debt holder would be primarily concerned with which of the following multiples? I Enterprise (Transaction) Value / EBITDA IL. Price/Earnings II Enterprise (Transaction) Value / Sales - ANSWER: 1 and 3 only On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares outstanding. The company has net debt of $300 million. After building an earnings model for Company X, you have projected free cash flow for each year through 2020 as follows: Year 2014 2015 2016 2017 2018 2019 2020 Calculate Company X's implied Enterprise Value by using the discounted cash flow method: - ANSWER: 2951.2 million On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares outstanding. The company has net debt of $300 million. After building an earnings model for Company X, you have projected free cash flow for each year through 2014 as follows: Year 2014 2015 2016 2017 2018 2019 2020 Free Cash Flow 110 120 150 170 200 250 280 You estimate that the weighted average cost of capital (WACC) for Company X is 10% and assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year. According to the discounted cash flow valuation method, Company X shares are: - ANSWER: .13 per share overvalued the formula for discounting any specific period cash flowin period "t'is: - ANSWER: cash flow from period "t" divided by (1+discount rate raised exponentially to "t the terminal value ofa business that grows indefinitely is calculated as follows - ANSWER: cash flow from period "t+1" divided by (discount rate-growth rate) the two-stage DCF model is: - ANSWER: where stage 1 is an explicit projection of free cash flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows beyond the explicit forecast period disadvantages of a DCF do not include - ANSWER: free cash flows over the first 5-10 year period represent a significant portion of value and are highly sensitive to valuation assumptions the typical sell-side process - ANSWER: shorter than the buy side, buyer secures financing, and doesn't involve id'ing potential issues to address such as ownership and unusual equity structures, liabilities, etc. the following happened in a recent M&A transaction: 1. PP&E of the target company was increased from its original book basis of $600 million to $800 million to reflect fair market value for book purposes in accordance with the purchase method of accounting. 2. no "step-up" for tax purposes. 3. original tax basis of $650 million. assuming a corporate tax rate of 35% for book purposes, the company should record the following - ANSWER: A deferred tax liability equal to $52.5 million o Acquirer purchases 100% of target by issuing additional stock to purchase target shares . No premium is offered to the current target share price 0 Acquirer share price at announcement is $30 Q Target share price at announcement is $50 . Acquirer EPS next year is $3.00 . Target EPS next year is $2.00 . Acquirer has 4 thousand shares outstanding . Target has 2 thousand shares outstanding What is the exchange ratio for the deal? - ANSWER: 1.7x 0 Acquirer purchases 100% of target by issuing additional stock to purchase target shares . No premium is offered to the current target share price 0 Acquirer share price at announcement is $30 . Target share price at announcement is $50 . Acquirer EPS next year is $3.00 Q Target EPS next year is $2.00 . Acquirer has 4 thousand shares outstanding . Target has 2 thousand shares outstanding Assuming a 40% tax rate, what are the necessary pre-tax synergies needed to break-even ? - ANSWER: Pushdown accounting: - ANSWER: Refers to the establishment ofa new accounting and reporting basis in an acquired company’s separate financial statements Use the following information to answer the question below:+ Acquirer purchases 100% of target by issuing $100 million in new debt to purchase target shares, carrying an interest rate of 10% Q Excess cash is used to help pay for the acquisition . Acquirer expects to be able to close down several of the target company’s old manufacturing facilities and save an estimated $2 million in the first year . Target PP&E is written up by $25 million to fair market value . Investment bankers, accountants, and consultants on the deal earned $30 million in fees Which of the following adjustments would be made to the pro forma income statement? - ANSWER: Advisory fee expense of $30 million Depreciation expense increase due to PP&E write-up Pre-tax synergies of $2 million Use the following information to answer the question below: . Acquirer FYE - June 30 . Target FYE - December 31 . Acquirer expected EPS for FYE June 2014 is $2.40 . Target consensus EPS for FYE Dec 2013 is $1.12 . Target consensus EPS for FYE Dec 2014 is $1.78 Assuming 360 days in a year for simplicity, calculate target EPS adjusted to acquirer FYE in the transaction year (FYE June 2014) - ANSWER: $1.45 A 338(h)(10) election: - ANSWER: Requires that both buyer and seller must jointly elect to have the IRS deem the acquisition an asset sale for tax purposes A good LBO candidate has which of the following characteristics? - ANSWER: Little to no existing leverage, steady cash flows and little investment in business through capex and working capital Which of the following is NOT a disadvantage of performing an LBO analysis? - ANSWER: Stand-alone LBO may overestimate strategic sale value by ignoring synergies with acquirer While equity contribution went as low as the single digits in the 1980's, the current split between equity and debt in an LBO deal is best characterized as: - ANSWER: Equity - 35%; Debt 65% Leverage ratio of 0.6x (Net debt/EBITDA) 2013 EBITDA = $2.0 billion Assume no cash on company Y's balance sheet On December 31, 2013: Company Y undergoes an LBO and is recapitalized The company’s new leverage ratio becomes 5.0x Financial sponsor exit is planned for Year 5. Assume that the EV/ EBITDA multiple at exit year is the same as the current multiple. Required rate of return is 25% Exit year EBITDA projected to be $3.0 billion The company's year-end leverage ratio is 1.6x What is the initial Equity Value? - ANSWER: 8.8 billion On December 30, 2013: Company Y trades at $10 per share Enterprise Value / EBITDA multiple of 5.0x Leverage ratio of 0.6x (Net debt/EBITDA) 2013 EBITDA = $2.0 billion Assume no cash on company Y's balance sheet On December 31, 2013: Company Y undergoes an LBO and is recapitalized The company’s new leverage ratio becomes 5.0x Financial sponsor exit is planned for Year 5. Assume that the EV/ EBITDA multiple at exit year is the same as the current multiple. Non-equity claims that should be deducted from Enterprise Value to find Equity Value include all of the following EXCEPT: - ANSWER: Minority interest, preferred stock, capitalized leases LTM (Last Twelve Months) is calculated as follows - ANSWER: Latest completed fiscal year results + Latest reported stub period results - Same stub period results from one year ago Company A shares are currently trading at $50 per share. A survey of Wall Street analysts reveals that EPS expectations for Company A for the full year 2014 are $2.50 per share. Company A has 300 million diluted shares outstanding. Company A's major competitors are trading at an average share price / 2014 Expected EPS of 23.0x. Using the comparable company analysis valuation method, Company A shares are: - ANSWER: 7.5 per share undervalued A debt holder would be primarily concerned with which of the following multiples? I Enterprise (Transaction) Value / EBITDA IL. Price/Earnings II Enterprise (Transaction) Value / Sales - ANSWER: one and three only 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 million diluted 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: - ANSWER: 2.5 per share undervalued When looking to do a transaction comp analysis, some of the merger- related filings that should be looked at include each of the following except: - ANSWER: Form s-1 when determining value for a company based on transaction rather than trading comps, one of the key differences that will affect the value is - 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 have compiled a group of comparable transactions within the beer bottling space and have calculated that since 2014, acquisitions similar (or comparable!) to the one Garth's is currently considering have had transaction values (offer value of target plus any target debt, net of cash) that are, on average, 8.0x target's EBITDA. . Wayne's shares currently trade at $34 per share . Wayne's has 50 million diluted shares outstanding 
