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Adventis |/FMC |/Level |/ 2 |/questions |/with |/answers
what |/is |/value |/- |/CORRECT |/ANSWERS |/✔✔what |/people |/are |/willing |/to |/pay |/for |/(what |/the |/buyer |/pays) who |/said, |/"Value |/is |/what |/people |/are |/willing |/to |/pay |/for" |/- |/CORRECT |/ANSWERS |/✔✔John |/Naisbitt 2 |/primary |/types |/of |/valuation |/- |/CORRECT |/ANSWERS |/✔✔1. |/relative |/valuation
- |/intrinsic |/valuation relative |/valuation |/refers |/to |/what |/- |/CORRECT |/ANSWERS |/✔✔methods |/that |/compare |/the |/price |/of |/a |/company |/to |/the |/market |/value |/of |/similar |/assets intrinsic |/value |/refers |/to |/what |/- |/CORRECT |/ANSWERS |/✔✔the |/value |/of |/a |/company |/through |/fundamental |/analysis |/without |/reference |/to |/its |/market |/value |/but |/instead |/around |/its |/ability |/to |/generate |/cash |/flow in |/an |/M&A |/context, |/what |/is |/EV |/- |/CORRECT |/ANSWERS |/✔✔transaction |/value
in |/an |/M&A |/context, |/what |/is |/equity |/value |/- |/CORRECT |/ANSWERS |/✔✔purchase |/price a |/company |/sold |/for |/$100M |/and |/the |/company |/being |/bought |/had |/$15M |/of |/debt |/and |/$2M |/of |/cash, |/what |/happens |/and |/what |/is |/the |/transaction |/value |/and |/purchase |/price |/- |/CORRECT |/ANSWERS |/✔✔- |/the |/$2M |/would |/be |/used |/by |/shareholders |/of |/the |/acquired |/company |/to |/pay |/down |/existing |/$15M |/in |/debt |/to |/make |/$13M |/in |/debt |/now |/(15 |/- |/ 2 |/= |/13)
- |/the |/proceeds |/from |/the |/deal |/would |/then |/be |/used |/to |/pay |/down |/the |/remaining |/debt |/(EV |/= |/CS |/+ |/PS |/+ |/Debt |/- |/Cash)
- |/Result |/is |/ 100 |/- |/ 13 |/= |/ 87
- |/TV |/= |/$100M
- |/Purchase |/price |/= |/$87 |/(check |/to |/shareholders |/of |/acquired |/company) 2 |/primary |/types |/of |/relative |/valuation |/- |/CORRECT |/ANSWERS |/✔✔1. |/comparable |/company |/analysis
- |/acquisition |/comparables |/analysis comparable |/companies |/analyses |/(public |/trading |/comparables |/analyses) |/- |/CORRECT |/ANSWERS |/✔✔- |/most |/common |/types |/of |/relative |/valuation
- |/these |/methods |/allow |/investors |/to |/compare |/valuation |/of |/similar |/companies |/by |/comparing |/similar |/ratios
acquisition |/comparables |/analysis |/(transaction |/comparables |/analysis) |/- |/CORRECT |/ANSWERS |/✔✔represent |/comparable |/acquisitions |/that |/have |/taken |/place |/and |/have |/been |/publicly |/announced are |/multiples |/for |/acquisition |/comparables |/higher |/or |/lower |/than |/mulitples |/for |/comparable |/companies |/- |/CORRECT |/ANSWERS |/✔✔higher |/because |/acquirers |/need |/to |/pay |/a |/premium |/to |/the |/current |/share |/price |/to |/gain |/control |/of |/the |/company most |/common |/type |/of |/intrinsic |/valuation |/- |/CORRECT |/ANSWERS |/✔✔DCF |/analysis what |/is |/DCF |/analysis |/- |/CORRECT |/ANSWERS |/✔✔it |/is |/the |/process |/of |/projecting |/future |/cash |/flows |/and |/discounting |/them |/to |/their |/PVs |/by |/using |/TVM steps |/for |/DCF |/- |/CORRECT |/ANSWERS |/✔✔1. |/project |/future |/cash |/flows
- |/discount |/future |/cash |/flows |/to |/their |/PV's
- |/Find |/the |/PV |/of |/all |/cash |/flows |/beyond |/the |/projection |/period |/(terminal |/value) cash |/flow |/metric |/used |/for |/DCF |/analysis |/- |/CORRECT |/ANSWERS |/✔✔unlevered |/FCF
unlevered |/FCF |/- |/CORRECT |/ANSWERS |/✔✔- |/cash |/flow |/available |/to |/all |/stakeholders
- |/not |/affected |/by |/capital |/structure
- |/doesn't |/include |/interest |/expense why |/is |/tax-effected |/EBIT |/used |/rather |/than |/net |/income |/- |/CORRECT |/ANSWERS |/✔✔- |/the |/valuation |/should |/not |/depend |/on |/capital |/structure
- |/applying |/the |/tax-rate |/directly |/to |/EBIT |/without |/subtracting |/interest |/expense |/eliminates |/the |/impact |/of |/capital |/structure |/to |/cash |/flow cash |/flow |/is |/projected |/out |/in |/the |/projection |/period |/which |/is |/typically... |/- |/CORRECT |/ANSWERS |/✔✔ 5 |/years |/but |/could |/be |/ 10 |/years |/for |/startups the |/analyst |/should |/end |/the |/model |/with |/a |/financial |/year |/representative |/of |/a... |/- |/CORRECT |/ANSWERS |/✔✔steady |/state |/to |/ensure |/the |/analysis |/does |/not |/over |/or |/understate |/total |/valuation first |/component |/of |/determining |/the |/present |/value |/of |/a |/company |/is |/- |/CORRECT |/ANSWERS |/✔✔calculate |/each |/unlevered |/FCF's |/PV |/by |/discounting |/them |/using |/the |/discount |/rate |/(cost |/of |/capital)
|/would |/eventually |/grow |/to |/be |/larger |/than |/the |/entire |/domestic |/economy EBITDA |/exit |/multiple |/assumes... |/- |/CORRECT |/ANSWERS |/✔✔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 |/- |/CORRECT |/ANSWERS |/✔✔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 |/- |/CORRECT |/ANSWERS |/✔✔the |/exit |/multiple |/could |/be |/considered |/unrealistic formula |/for |/PV |/of |/projection |/period |/- |/CORRECT |/ANSWERS |/✔✔PV |/= |/FV/(1+r)^N formula |/for |/PV |/of |/terminal |/value |/- |/CORRECT |/ANSWERS |/✔✔PV |/= |/TV/(1+r)^N formula |/for |/terminal |/value |/using |/perpetuity |/method |/- |/CORRECT |/ANSWERS |/✔✔TV |/= |/Terminal |/year |/FCF |/(1 |/+ |/g) |// |/(r |/- |/g)
formula |/for |/terminal |/value |/using |/EBITDA |/exit |/multiple |/method |/- |/CORRECT |/ANSWERS |/✔✔Terminal |/year |/EBITDA |/X |/EBITDA |/multiple the |/discount |/rate |/used |/in |/a |/DCF |/analysis |/should |/be... |/- |/CORRECT |/ANSWERS |/✔✔the |/cost |/of |/capital |/for |/the |/business |/being |/valued Weighted |/average |/cost |/of |/capital |/(WACC) |/is |/used |/to... |/- |/CORRECT |/ANSWERS |/✔✔determine |/the |/discount |/rate |/or |/a |/range |/of |/discount |/rates |/to |/be |/used |/in |/a |/DCF |/analysis often |/companies |/add |/a |/premium |/to |/the |/WACC |/to |/determine... |/- |/CORRECT |/ANSWERS |/✔✔a |/hurdle |/rate |/which |/will |/then |/be |/used |/as |/the |/discount |/rate what |/is |/the |/WACC |/- |/CORRECT |/ANSWERS |/✔✔minimum |/return |/that |/a |/company |/must |/earn |/on |/an |/existing |/asset |/base |/to |/satisfy |/all |/capital |/providers WACC |/represents... |/- |/CORRECT |/ANSWERS |/✔✔the |/blended |/cost |/to |/debt |/holders |/and |/equity |/holders |/based |/on |/the |/cost |/of |/debt |/and |/cost |/of |/equity WACC |/formula |/- |/CORRECT |/ANSWERS |/✔✔WACC |/= |/(%equity |/X |/cost |/of |/equity) |/+ |/(%debt |/X |/cost |/of |/debt) |/X |/(1-T)
Rf |/- |/CORRECT |/ANSWERS |/✔✔risk |/free |/rate |/(10 |/year |/bond) B |/- |/CORRECT |/ANSWERS |/✔✔Beta |/(how |/volatile |/the |/stock |/is |/in |/comparison |/to |/the |/market) Rm-Rf |/- |/CORRECT |/ANSWERS |/✔✔market |/risk |/premium |/(expected |/return |/on |/the |/market |/- |/risk |/free |/rate) what |/does |/a |/leveraged |/buyout |/analysis |/tell |/you |/- |/CORRECT |/ANSWERS |/✔✔how |/much |/a |/private |/equity |/firm |/could |/afford |/to |/pay |/for |/a |/business private |/equity |/firms |/target |/a |/higher |/or |/lower |/return? |/- |/CORRECT |/ANSWERS |/✔✔higher |/which |/means |/they |/use |/higher |/leverage for |/publicly |/traded |/companies, |/the |/purchase |/price |/assumes |/what? |/- |/CORRECT |/ANSWERS |/✔✔a |/premium |/to |/the |/stock |/price |/to |/incent |/a |/change |/in |/ownership premium |/typically |/ranges |/between... |/- |/CORRECT |/ANSWERS |/✔✔20- 40%
transaction |/value |/determined |/by... |/- |/CORRECT |/ANSWERS |/✔✔adding |/net |/debt |/to |/the |/purchase |/price transaction |/value |/represents... |/- |/CORRECT |/ANSWERS |/✔✔total |/value |/that |/must |/be |/financed |/to |/acquire |/the |/company sources |/and |/uses |/reflect |/what |/- |/CORRECT |/ANSWERS |/✔✔sources |/and |/uses |/of |/capital |/to |/finance |/the |/acquisition sources |/include |/- |/CORRECT |/ANSWERS |/✔✔1. |/debt
- |/equity debt |/sources |/- |/CORRECT |/ANSWERS |/✔✔1. |/bank |/debt |/
- |/high |/yield |/debt bank |/debt |/- |/CORRECT |/ANSWERS |/✔✔amortized |/over |/a |/period |/of |/time high |/yield |/debt |/- |/CORRECT |/ANSWERS |/✔✔interest |/only |/with |/the |/ability |/to |/pay |/down |/principal |/based |/on |/cash |/flow uses |/include |/- |/CORRECT |/ANSWERS |/✔✔1. |/transaction |/value
- |/beginning |/balance |/of |/cash
- |/deal |/fees
- |/higher |/interest |/rates |/due |/to |/additional |/default |/risk typical |/debt/EBITDA |/- |/CORRECT |/ANSWERS |/✔✔2.0x-4.0x typical |/total |/debt/EBITDA |/- |/CORRECT |/ANSWERS |/✔✔4.0x-6.0x the |/financial |/sponsor's |/equity |/investment |/makes |/up |/- |/CORRECT |/ANSWERS |/✔✔- |/any |/remaining |/capital |/needed |/to |/finance |/the |/transaction |/value
- |/20-40% |/of |/total |/sources most |/commonly |/used |/measures |/of |/return |/- |/CORRECT |/ANSWERS |/✔✔1. |/cash-on-cash |/return
- |/internal |/rate |/of |/return |/(IRR) both |/measures |/take |/into |/account |/- |/CORRECT |/ANSWERS |/✔✔the |/relationship |/of |/capital |/invested |/by |/the |/financial |/sponsor |/vs. |/capital |/returned |/over |/the |/life |/of |/the |/investment the |/IRR |/unlike |/the |/cash-on-cash |/take |/into |/account |/- |/CORRECT |/ANSWERS |/✔✔- |/TVM
- |/produces |/annualized |/rate |/or |/return
target |/IRR's |/range |/from |/- |/CORRECT |/ANSWERS |/✔✔20-30% IRR |/- |/CORRECT |/ANSWERS |/✔✔annualized |/effective |/compounded |/return |/rate |/that |/makes |/NPV |/= |/ 0 IRR |/formula |/- |/CORRECT |/ANSWERS |/✔✔IRR |/= |/(cash |/returned |/to |/sponsor/initial |/equity |/invested)^1/N |/- |/ 1 if |/an |/investor |/receives |/a |/15% |/IRR |/over |/the |/life |/of |/an |/investment... |/- |/CORRECT |/ANSWERS |/✔✔investment |/increased |/on |/avg |/15% |/per |/year cash-on-cash |/multiple |/- |/CORRECT |/ANSWERS |/✔✔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 |/- |/CORRECT |/ANSWERS |/✔✔cash |/returned |/to |/sponsor/initial |/equity |/invested if |/an |/investor |/gets |/a |/cash-on-cash |/multiple |/of |/2.5x... |/- |/CORRECT |/ANSWERS |/✔✔they |/received |/$2.50 |/for |/every |/$1 |/invested
