Question 1

The comparable companies' valuation method uses the discounted value of a firm's free cash flow.

Accepted Answer

A) True 
 B)False  False

Question 2

The capitalization rate is equivalent to the discount rate when the firm's revenues are not expected to grow.

Accepted Answer

A) True 
 B)False  True

Question 3

The tangible book value or equity per share method is applicable primarily to the following industries:

Accepted Answer

A)  Steel and financial services 
B)  Distribution and financial services 
C)  Electric and natural gas utilities 
D)  Coal and copper mining 
E)  Space and defense 
A)  Steel and financial services 
B)  Distribution and financial services 
C)  Electric and natural gas utilities 
D)  Coal and copper mining 
E)  Space and defense B

Question 4

All investment decisions include clearly identifiable and measurable real options whose estimated value should be included in the valuation of the opportunity.

Accepted Answer

A) True 
 B)False

Question 5

Which one of the following factors is not considered calculating a firm's PEG ratio?

Accepted Answer

A)  Projected growth rate of the value indicator (e.g., earnings) 
B)  Ratio of market price to value indicator (e.g., P/
E)  
C)  Share exchange ratio 
D)  Historical growth rate of the value indicator 
E)  None of the above 
A)  Projected growth rate of the value indicator (e.g., earnings) 
B)  Ratio of market price to value indicator (e.g., P/
E)  
C)  Share exchange ratio 
D)  Historical growth rate of the value indicator 
E)  None of the above

Question 6

Micro value drivers are those factors affecting specific functions within the firm.

Accepted Answer

A) True 
 B)False

Question 7

A higher P/E ratio for a firm may be justified if its earnings are expected to grow significantly faster than firm's future earnings.

Accepted Answer

A) True 
 B)False

Question 8

The number of billing errors as a percent of total invoices is a specific example of a macro value driver.

Accepted Answer

A) True 
 B)False

Question 9

Real options,also called strategic management options,refer to management's ability to adopt and later revise corporate investment decisions.

Accepted Answer

A) True 
 B)False

Question 10

In determining the purchase price for an acquisition target,which one of the following valuation methods does not require the addition of a purchase price premium?

Accepted Answer

A)  Discounted cash flow method 
B)  Comparable companies' method 
C)  Comparable industries' method 
D)  Recent transactions' method 
E)  A & B only 
A)  Discounted cash flow method 
B)  Comparable companies' method 
C)  Comparable industries' method 
D)  Recent transactions' method 
E)  A & B only

Question 11

Limitations in applying the comparable companies' method of valuation include which of the following?

Accepted Answer

A)  Finding truly comparable companies is difficult 
B)  The use of market-based methods can result in significant under- or overvaluation during periods of declining or rising stock markets 
C)  Market-based methods can be manipulated easily, because the methods do not require a clear statement of assumptions with respect to risk, growth, or the timing or magnitude of future earnings and cash flows. 
D)  A, B, & C 
E)  A & B only 
A)  Finding truly comparable companies is difficult 
B)  The use of market-based methods can result in significant under- or overvaluation during periods of declining or rising stock markets 
C)  Market-based methods can be manipulated easily, because the methods do not require a clear statement of assumptions with respect to risk, growth, or the timing or magnitude of future earnings and cash flows. 
D)  A, B, & C 
E)  A & B only

Question 12

If the P/E ratio for the comparable firm is equal to 10 and the after-tax earnings of the target firm are $2 million,the market value of the target firm would be $5 million.

Accepted Answer

A) True 
 B)False

Question 13

The replacement cost approach to valuation of a target firm ignores value created by operating the assets in combination as a going concern.

Accepted Answer

A) True 
 B)False

Question 14

Tangible book value is the value of shareholders' equity less net fixed assets.

Accepted Answer

A) True 
 B)False

Question 15

The use of market-based valuation methods usually reflect actual demand and supply considerations at a moment in time.

Accepted Answer

A) True 
 B)False

Question 16

The PEG ratio can be helpful in evaluating the potential market values of a number of different firms in the same industry in selecting which may be the most attractive acquisition target.

Accepted Answer

A) True 
 B)False

Question 17

Price-to-earnings ratios of comparable companies provide an excellent means of valuing the target firm at any point in the business cycle.

Accepted Answer

A) True 
 B)False

Question 18

Macro value drivers are those factors which directly influence specific activities within the firm.

Accepted Answer

A) True 
 B)False

Question 19

Liquidation value is the projected sale value of a firm's assets.

Accepted Answer

A) True 
 B)False

Question 20

Market-based valuation methods are less prone to manipulation than discounted cash flow methods because they require a more detailed statement of assumptions.

Accepted Answer

A) True 
 B)False

The comparable companies' valuation method uses the discounted value of a firm's free cash flow.

The capitalization rate is equivalent to the discount rate when the firm's revenues are not expected to grow.

The tangible book value or equity per share method is applicable primarily to the following industries:

All investment decisions include clearly identifiable and measurable real options whose estimated value should be included in the valuation of the opportunity.

Which one of the following factors is not considered calculating a firm's PEG ratio?

Micro value drivers are those factors affecting specific functions within the firm.

A higher P/E ratio for a firm may be justified if its earnings are expected to grow significantly faster than firm's future earnings.

The number of billing errors as a percent of total invoices is a specific example of a macro value driver.

Real options,also called strategic management options,refer to management's ability to adopt and later revise corporate investment decisions.

In determining the purchase price for an acquisition target,which one of the following valuation methods does not require the addition of a purchase price premium?

Limitations in applying the comparable companies' method of valuation include which of the following?

If the P/E ratio for the comparable firm is equal to 10 and the after-tax earnings of the target firm are $2 million,the market value of the target firm would be $5 million.

The replacement cost approach to valuation of a target firm ignores value created by operating the assets in combination as a going concern.

Tangible book value is the value of shareholders' equity less net fixed assets.

The use of market-based valuation methods usually reflect actual demand and supply considerations at a moment in time.

The PEG ratio can be helpful in evaluating the potential market values of a number of different firms in the same industry in selecting which may be the most attractive acquisition target.

Price-to-earnings ratios of comparable companies provide an excellent means of valuing the target firm at any point in the business cycle.

Macro value drivers are those factors which directly influence specific activities within the firm.

Liquidation value is the projected sale value of a firm's assets.

Market-based valuation methods are less prone to manipulation than discounted cash flow methods because they require a more detailed statement of assumptions.

Introduction to Mergers, acquisitions, and Other Restructuring Activities

The Regulatory Environment

The Corporate Takeover Market: Common Takeover Tactics, anti-Takeover Defenses, and Corporate Governance

Planning,developing Business,and Acquisition Plans: Phases 1 and 2 of the Acquisition Process

Implementation: Search Through Closing: Phases 3 to 10 of the Acquisition Process

Postclosing Integration: Mergers, acquisitions, and Business Alliances

Merger and Acquisition Cash Flow Valuation Basics

Applying Financial Models to Value, structure, and Negotiate Mergers and Acquisitions

Analysis and Valuation of Privately Held Companies

Structuring the Deal: Payment and Legal Considerations

Structuring the Deal: Tax and Accounting Considerations

Financing the Deal: Private Equity, hedge Funds, and Other Sources of Funds

Highly Leveraged Transactions: Lbo Valuation and Modeling Basics

Business Alliances: Joint Ventures, partnerships, strategic Alliances, and Licensing

Alternative Exit and Restructuring Strategies: Divestitures, spin-Offs, carve-Outs, split-Ups, and Split-Offs

Alternative Exit and Restructuring Strategies: Bankruptcy Reorganization and Liquidation

Cross-Border Mergers and Acquisitions: Analysis and Valuation

Filters

Exam 8: Relative,asset-Oriented,and Real Option Valuation Basics

The comparable companies' valuation method uses the discounted value of a firm's free cash flow.

The capitalization rate is equivalent to the discount rate when the firm's revenues are not expected to grow.

The tangible book value or equity per share method is applicable primarily to the following industries:

All investment decisions include clearly identifiable and measurable real options whose estimated value should be included in the valuation of the opportunity.

Which one of the following factors is not considered calculating a firm's PEG ratio?

Micro value drivers are those factors affecting specific functions within the firm.

A higher P/E ratio for a firm may be justified if its earnings are expected to grow significantly faster than firm's future earnings.

The number of billing errors as a percent of total invoices is a specific example of a macro value driver.

Real options,also called strategic management options,refer to management's ability to adopt and later revise corporate investment decisions.

In determining the purchase price for an acquisition target,which one of the following valuation methods does not require the addition of a purchase price premium?

Limitations in applying the comparable companies' method of valuation include which of the following?

If the P/E ratio for the comparable firm is equal to 10 and the after-tax earnings of the target firm are $2 million,the market value of the target firm would be $5 million.

The replacement cost approach to valuation of a target firm ignores value created by operating the assets in combination as a going concern.

Tangible book value is the value of shareholders' equity less net fixed assets.

The use of market-based valuation methods usually reflect actual demand and supply considerations at a moment in time.

The PEG ratio can be helpful in evaluating the potential market values of a number of different firms in the same industry in selecting which may be the most attractive acquisition target.

Price-to-earnings ratios of comparable companies provide an excellent means of valuing the target firm at any point in the business cycle.

Macro value drivers are those factors which directly influence specific activities within the firm.

Liquidation value is the projected sale value of a firm's assets.

Market-based valuation methods are less prone to manipulation than discounted cash flow methods because they require a more detailed statement of assumptions.

Introduction to Mergers, acquisitions, and Other Restructuring Activities

The Regulatory Environment

The Corporate Takeover Market: Common Takeover Tactics, anti-Takeover Defenses, and Corporate Governance

Planning,developing Business,and Acquisition Plans: Phases 1 and 2 of the Acquisition Process

Implementation: Search Through Closing: Phases 3 to 10 of the Acquisition Process

Postclosing Integration: Mergers, acquisitions, and Business Alliances

Merger and Acquisition Cash Flow Valuation Basics

Applying Financial Models to Value, structure, and Negotiate Mergers and Acquisitions

Analysis and Valuation of Privately Held Companies

Structuring the Deal: Payment and Legal Considerations

Structuring the Deal: Tax and Accounting Considerations

Financing the Deal: Private Equity, hedge Funds, and Other Sources of Funds

Highly Leveraged Transactions: Lbo Valuation and Modeling Basics

Business Alliances: Joint Ventures, partnerships, strategic Alliances, and Licensing

Alternative Exit and Restructuring Strategies: Divestitures, spin-Offs, carve-Outs, split-Ups, and Split-Offs

Alternative Exit and Restructuring Strategies: Bankruptcy Reorganization and Liquidation

Cross-Border Mergers and Acquisitions: Analysis and Valuation

Filters