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Adventis FMC Level 2 with Complete Solutions | Already Passed| Verified 2025
Typology: Exams
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what is value - ✔✔what people are willing to pay for (what the buyer pays) who said, "Value is what people are willing to pay for" - ✔✔John Naisbitt 2 primary types of valuation - ✔✔1. relative valuation
in practice, you would typically expect to see perpetuity growth do what when a company matures - ✔✔decline to calculate the terminal value under the perpetuity growth method, what model is used - ✔✔Gordon- Growth Model the Gordon-Growth Model rests on the assumption that... - ✔✔CF of the last period will stabilize and continue at the same rate of growth forever perpetuity growth rate represents - ✔✔an average growth rate perpetuity growth rate can't exceed what - ✔✔local inflation rate because that would signify that the company would eventually grow to be larger than the entire domestic economy EBITDA exit multiple assumes... - ✔✔that the company is sold in the last year of the projection period at a multiple of EBITDA what will investors do with these two methods - ✔✔use one method and back into an implied value for the other method as a check if a 12.0x EBITDA exit multiple implies a 5% perpetuity growth rate, what can be said - ✔✔the exit multiple could be considered unrealistic formula for PV of projection period - ✔✔PV = FV/(1+r)^N
B - ✔✔Beta (how volatile the stock is in comparison to the market) Rm-Rf - ✔✔market risk premium (expected return on the market - risk free rate) what does a leveraged buyout analysis tell you - ✔✔how much a private equity firm could afford to pay for a business private equity firms target a higher or lower return? - ✔✔higher which means they use higher leverage for publicly traded companies, the purchase price assumes what? - ✔✔a premium to the stock price to incent a change in ownership premium typically ranges between... - ✔✔ 20 - 40% transaction value determined by... - ✔✔adding net debt to the purchase price transaction value represents... - ✔✔total value that must be financed to acquire the company sources and uses reflect what - ✔✔sources and uses of capital to finance the acquisition sources include - ✔✔1. debt
senior debt - ✔✔- has first claim in bankruptcy
target IRR's range from - ✔✔ 20 - 30% IRR - ✔✔annualized effective compounded return rate that makes NPV = 0 IRR formula - ✔✔IRR = (cash returned to sponsor/initial equity invested)^1/N - 1 if an investor receives a 15% IRR over the life of an investment... - ✔✔investment increased on avg 15% per year cash-on-cash multiple - ✔✔how much an investor receives in proceeds upon exiting the investment compared to its initial investment (doesn't matter when the exit actually occurs) cash-on-cash formula - ✔✔cash returned to sponsor/initial equity invested if an investor gets a cash-on-cash multiple of 2.5x... - ✔✔they received $2.50 for every $1 invested