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WALL STREET PREP PREMIUM EXAM QUESTIONS AND CORRECT ANSWERS | ALREADY GRADED A+, Exams of Finance

Washington CollegeFinance

WALL STREET PREP PREMIUM EXAM QUESTIONS AND CORRECT ANSWERS | ALREADY GRADED A+ | VERIFIED ANSWERS | LATEST VERSION

Typology: Exams

2024/2025

Available from 09/20/2024

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WALL STREET PREP PREMIUM EXAM QUESTIONS
AND CORRECT ANSWERS | ALREADY GRADED A+ |
VERIFIED ANSWERS | LATEST VERSION
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 ------CORRECT
ANSWER---------------A deferred tax liability equal to $52.5 million
An acquisition creates shareholder value: ------CORRECT ANSWER---------
------when a company acquires a business whose fundamental value is
higher than the purchase price
• Acquirer purchases 100% of target by issuing additional stock to purchase
target shares
• No premium is offered to the current target share price
• Acquirer share price at announcement is $30
• 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? ------CORRECT ANSWER-----------
----1.7x
• Acquirer purchases 100% of target by issuing additional stock to purchase
target shares
• No premium is offered to the current target share price
• Acquirer share price at announcement is $30
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Download WALL STREET PREP PREMIUM EXAM QUESTIONS AND CORRECT ANSWERS | ALREADY GRADED A+ and more Exams Finance in PDF only on Docsity!

WALL STREET PREP PREMIUM EXAM QUESTIONS

AND CORRECT ANSWERS | ALREADY GRADED A+ |

VERIFIED ANSWERS | LATEST VERSION

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 $ 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 ------CORRECT ANSWER---------------A deferred tax liability equal to $52.5 million An acquisition creates shareholder value: ------CORRECT ANSWER--------- ------when a company acquires a business whose fundamental value is higher than the purchase price

  • Acquirer purchases 100% of target by issuing additional stock to purchase target shares
  • No premium is offered to the current target share price
  • Acquirer share price at announcement is $
  • Target share price at announcement is $
  • Acquirer EPS next year is $3.
  • Target EPS next year is $2.
  • Acquirer has 4 thousand shares outstanding
  • Target has 2 thousand shares outstanding What is the exchange ratio for the deal? ------CORRECT ANSWER----------- ----1.7x
  • Acquirer purchases 100% of target by issuing additional stock to purchase target shares
  • No premium is offered to the current target share price
  • Acquirer share price at announcement is $
  • Target share price at announcement is $
  • Acquirer EPS next year is $3.
  • Target EPS next year is $2.
  • 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? ------CORRECT ANSWER--------------- Pushdown accounting: ------CORRECT ANSWER---------------Refers to the establishment of a 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%
  • 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 $ million in fees Which of the following adjustments would be made to the pro forma income statement? ------CORRECT 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:
  • Acquisition takes place on July 1, 2013
  • Acquirer FYE - June 30
  • Target FYE - December 31
  • Acquirer expected EPS for FYE June 2014 is $2.

Under recapitalization accounting ------CORRECT ANSWER---------------The purchase price is reflected as a reduction to equity which of the following is true about senior debt ------CORRECT ANSWER--- ------------None of the Below. Has the least restrictive covenants because it is secured by the company's assets Since it is secured by the company's assets, lenders prefer to have the debt outstanding over time in order to generate more interest Usually uses PIK securities or come with warrants like mezzanine debt 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.
  • 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? ------CORRECT ANSWER---------------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.
  • 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 How much debt is paid down by the exit year (since the LBO announcement)? ------CORRECT ANSWER---------------5.2 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.
  • 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 necessary to achieve the rate of return required by the financial sponsors? ------CORRECT ANSWER---------------3.34 billion

the final component of an earnings projection model is calculating interest expense. the calculation may create a circular reference because ------ CORRECT ANSWER---------------interest expense affects net income, which affects FCF, which affects the amount of debt a company pays down, which, in turn affects the interest expense, hence the circular reference a 10-q financial filing has all of the following characteristics except ------ CORRECT ANSWER---------------issued four times a year. Depreciation Expense found in the SG&A line of the income statement for a manufacturing firm would most likely be attributable to which of the following ------CORRECT ANSWER---------------computers used by the accounting department If a 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? ------CORRECT ANSWER---------------45% A company has the following information, 1. 2014 revenues of $ billion,2013 Accounts receivable of $400 million, 2014 accounts receivable of $600 million, what are the days sales outstanding ------CORRECT ANSWER---------------36. 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? ------CORRECT ANSWER--- ------------65.7 days Which of the following is true ------CORRECT ANSWER---------------Coca Cola's brand name is not reflected as an intangible asset on its balance sheet A company has the following information:
  • 2014 share repurchase plan of $4 billion
  • Average share price of $60 for the year 2013
  • Expected EPS growth for 2014 of 10% What should the number of shares repurchased by the company be in your financial model? ------CORRECT ANSWER---------------60.6 million non-controlling interest ------CORRECT ANSWER---------------is an expense on the income statement and equity o the balance sheet A company has the following information:
  • 2013 retained earnings balance of $12 billion
  • Net income of $3.5 billion in 2014
  • Capex of $200 million in 2014
  • Preferred dividends of $100 million in 2014
  • Common dividends of $400 million in 2014 What is the retained earnings balance at the end of 2014? ------CORRECT ANSWER---------------15 billion

(i.e., no mid-year adjustment): ------CORRECT ANSWER--------------- 837 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. Calculate Company X's implied Enterprise Value by using the discounted cash flow method: ------CORRECT 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: ------CORRECT ANSWER---------------.13 per share overvalued

the formula for discounting any specific period cash flow in period "t"is: -----

  • CORRECT ANSWER---------------cash flow from period "t" divided by (1+discount rate raised exponentially to "t" the terminal value of a business that grows indefinitely is calculated as follows ------CORRECT ANSWER---------------cash flow from period "t+1" divided by (discount rate-growth rate) the two-stage DCF model is: ------CORRECT 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 ------CORRECT 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 ------CORRECT 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. A debt holder would be primarily concerned with which of the following multiples? I. Enterprise (Transaction) Value / EBITDA II. Price/Earnings III. Enterprise (Transaction) Value / Sales ------CORRECT ANSWER--------- ------one and three only