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WALL STREET PREP PREMIUM EXAM | ALL QUESTIONS AND CORRECT ANSWERS | GRADED A+ | VERIFIED ANSWERS | LATEST VERSION (JUST RELEASED)

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2024/2025

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Download WALL STREET PREP PREMIUM EXAM | ALL QUESTIONS AND CORRECT ANSWERS | GRADED A+ | VERIFIED and more Exams Finance in PDF only on Docsity! WALL STREET PREP PREMIUM EXAM | ALL QUESTIONS AND CORRECT ANSWERS | GRADED A+ | VERIFIED ANSWERS | LATEST VERSION (JUST RELEASED) 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: ------CORRECT 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: ------CORRECT 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 ------ CORRECT 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 • 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% 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 -CORRECT ANSWER---------------Use an Enterprise Value/Sales multiple to find Enterprise Value and then subtract net debt Use an Enterprise Value/EBITDA multiple to find Enterprise Value and then subtract net debt Use a Price/Earnings multiple to find Equity Value 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---------------8.8 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 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 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 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.