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WALL STREET PREP PREMIUM EXAM TRANSACTION COMPS MODELING WALL STREET PREP EXAM, Exams of Business Finance

International Business CollegeBusiness Finance

WALL STREET PREP PREMIUM EXAM TRANSACTION COMPS MODELING WALL STREET PREP EXAM | ALL 50 QUESTIONS AND CORRECT ANSWERS | ALREADY GRADED A+ | LATEST UPDATE 2024

Typology: Exams

2023/2024

Available from 01/25/2024

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WALL STREET PREP PREMIUM EXAM
TRANSACTION COMPS MODELING
WALL STREET PREP EXAM | ALL 50
QUESTIONS AND CORRECT ANSWERS
| ALREADY GRADED A+ | LATEST
UPDATE 2024
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
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Download WALL STREET PREP PREMIUM EXAM TRANSACTION COMPS MODELING WALL STREET PREP EXAM and more Exams Business Finance in PDF only on Docsity!

WALL STREET PREP PREMIUM EXAM

TRANSACTION COMPS MODELING

WALL STREET PREP EXAM | ALL 50

QUESTIONS AND CORRECT ANSWERS

| ALREADY GRADED A+ | LATEST

UPDATE 2024

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.

  • 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.
  • Target consensus EPS for FYE Dec 2013 is $1.
  • Target consensus EPS for FYE Dec 2014 is $1. Assuming 360 days in a year for simplicity, calculate target EPS adjusted to acquirer FYE in the transaction year

(FYE June 2014) -----CORRECT ANSWER---------------$1. What is generally not considered to be a pre-tax non-recurring (unusual or infrequent) item? -----CORRECT ANSWER---------------Extraordinary gains/losses what is false about depreciation and amortization -----CORRECT ANSWER---------------D&A may be classified within interest expense Company X's current assets increased by $40 million from 2007-2008 while the companies current liabilities increased by $25 million over the same period. the cash impact of the change in working capital was ----- CORRECT ANSWER---------------a decrease of 15 million 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

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 in order to find out how much cash is available to pay down short term debt, such as revolving credit line, you must take -----CORRECT 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 -----CORRECT ANSWER---------------apply a weighted average interest rate times the average debt balance over the course of the year enterprise (transaction) value represents the: -----CORRECT 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 II. Price/Earnings III. Enterprise (Transaction) Value / Sales -----CORRECT 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 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. Estimate the present value of the projected free cash flows through 2020, discounted at the stated WACC. Assume all cash flows are generated at the end of the year (i.e., no mid-year adjustment): -----CORRECT ANSWER--------------- 837 million A 338(h)(10) election: -----CORRECT 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? ----- CORRECT ANSWER---------------Little to no existing leverage, steady cash flows and little investment in business through capex and working capital

  • 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 Non-equity claims that should be deducted from Enterprise Value to find Equity Value include all of the following EXCEPT: -----CORRECT ANSWER---------------Minority interest, preferred stock, capitalized leases LTM (Last Twelve Months) is calculated as follows -----CORRECT 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: -----CORRECT ANSWER---------------7.5 per share undervalued
  • Wayne's shares currently trade at $34 per share
  • Wayne's has 50 million diluted shares outstanding
  • Wayne's LTM EBITDA was $250 million
  • Wayne's Net Debt was $200 million What is the offer value per share and the offer premium? -----CORRECT ANSWER---------------$36.00 per share; 5.9%