Question 1

Which of the following statements is correct?

Accepted Answer

A)  A firm's enterprise value is the total value of equity plus net debt, where net debt is debt less cash and investments in marketable securities. 
B)  A firm's book value is the total value of equity plus net debt, where net debt is debt less cash and investments in marketable securities. 
C)  A firm's market value is the total value of equity plus net debt, where net debt is debt less cash and investments in marketable securities. 
D)  A firm's nominal value is the total value of equity plus net debt, where net debt is debt less cash and investments in marketable securities. 
A)  A firm's enterprise value is the total value of equity plus net debt, where net debt is debt less cash and investments in marketable securities. 
B)  A firm's book value is the total value of equity plus net debt, where net debt is debt less cash and investments in marketable securities. 
C)  A firm's market value is the total value of equity plus net debt, where net debt is debt less cash and investments in marketable securities. 
D)  A firm's nominal value is the total value of equity plus net debt, where net debt is debt less cash and investments in marketable securities. A

Question 2

Use the tables for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010   Pro Forma Balance Sheet for Ideko, 2005-2010  
-Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation equity value of Ideko in 2010 is closest to:

Accepted Answer

A)  $152.8 million 
B)  $181.7 million 
C)  $301.7 million 
D)  $272.8 million 
A)  $152.8 million 
B)  $181.7 million 
C)  $301.7 million 
D)  $272.8 million B

Question 3

Use the tables for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010   Pro Forma Balance Sheet for Ideko, 2005-2010  
-Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation EV/Sales ratio of Ideko in 2010 is closest to:

Accepted Answer

A)  1.9 
B)  1.7 
C)  1.6 
D)  1.8 
A)  1.9 
B)  1.7 
C)  1.6 
D)  1.8 A

Question 4

Use the tables for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010   Pro Forma Balance Sheet for Ideko, 2005-2010  
-Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation unlevered P/E ratio of Ideko in 2010 is closest to:

Accepted Answer

A)  17.2 
B)  16.4 
C)  14.5 
D)  19.4 
A)  17.2 
B)  16.4 
C)  14.5 
D)  19.4

Question 5

Use the table for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010  
-The amount of the increase in net working capital for Ideko in 2007 is closest to:

Accepted Answer

A)  $4,090 
B)  $4,685 
C)  $3,665 
D)  $5,230 
A)  $4,090 
B)  $4,685 
C)  $3,665 
D)  $5,230

Question 6

Use the tables for the question(s) below.
Estimated 2005 Income Statement and Balance Sheet Data for Ideko Corporation   The following are financial ratios for three comparable companies:  
-Based upon the average EV/Sales ratio of the comparable firms,if Ideko holds $6.5 million of cash in excess of its working capital needs,then Ideko's target market value of equity is closest to:

Accepted Answer

A)  $165 million 
B)  $157 million 
C)  $193 million 
D)  $191 million 
E)  $155 million 
A)  $165 million 
B)  $157 million 
C)  $193 million 
D)  $191 million 
E)  $155 million

Question 7

Use the tables for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010   Pro Forma Balance Sheet for Ideko, 2005-2010  
-Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation enterprise value of Ideko in 2010 is closest to:

Accepted Answer

A)  $152.8 million 
B)  $272.8 million 
C)  $301.7 million 
D)  $181.7 million 
A)  $152.8 million 
B)  $272.8 million 
C)  $301.7 million 
D)  $181.7 million

Question 8

Use the table for the question(s) below.
Capital Structure and Unlevered Beta Estimates for Comparable Firms  
-The unlevered beta for Oakley is closest to:

Accepted Answer

A)  0.70 
B)  1.50 
C)  1.00 
D)  0.60 
A)  0.70 
B)  1.50 
C)  1.00 
D)  0.60

Question 9

What is the purpose of the sensitivity analysis?

Accepted Answer

Any financial valuation is only as accur

Question 10

Use the tables for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010   Pro Forma Balance Sheet for Ideko, 2005-2010  
-Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation unlevered P/E ratio of Ideko in 2010 is closest to:

Accepted Answer

A)  17.6 
B)  16.4 
C)  14.5 
D)  19.0 
A)  17.6 
B)  16.4 
C)  14.5 
D)  19.0

Question 11

Use the table for the question(s) below.
Ideko Sales and Operating Cost Assumptions  
-Based upon Ideko's Sales and Operating Cost Assumptions,what production capacity will Ideko require in 2007?

Accepted Answer

A)  1,505 units 
B)  1,323 units 
C)  1,914 units 
D)  1,115 units 
E)  1,702 units 
A)  1,505 units 
B)  1,323 units 
C)  1,914 units 
D)  1,115 units 
E)  1,702 units

Question 12

Use the tables for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010   Pro Forma Balance Sheet for Ideko, 2005-2010  
-Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation levered P/E ratio of Ideko in 2010 is closest to:

Accepted Answer

A)  17.2 
B)  14.5 
C)  19.0 
D)  16.4 
A)  17.2 
B)  14.5 
C)  19.0 
D)  16.4

Question 13

Use the table for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010  
-Using the income statement above and the following information:   Calculate Ideko's Free Cash Flow to the Firm and Free Cash Flow to Equity in 2009.

Accepted Answer

@#IMG-DLM& After-tax interest expense is

Question 14

Since Capital Cost Allowance (CCA)is a non-cash expense,the effect is to increase a company's ________.

Accepted Answer

A)  cash flows 
B)  revenues 
C)  book value of assets 
D)  capital assets 
A)  cash flows 
B)  revenues 
C)  book value of assets 
D)  capital assets

Question 15

While ________ method is the most reliable method when evaluating an acquisition investment,real-world practitioners often use ________ and ________ as alternative valuation metrics.

Accepted Answer

A)  the NPV; the IRR; the cash multiple (or multiple of money) 
B)  the IRR; the NPV; the cash multiple (or multiple of money) 
C)  the NPV; the cash multiple (or multiple of money); the IRR 
D)  the IRR; the cash multiple (or multiple of money); the NPV 
A)  the NPV; the IRR; the cash multiple (or multiple of money) 
B)  the IRR; the NPV; the cash multiple (or multiple of money) 
C)  the NPV; the cash multiple (or multiple of money); the IRR 
D)  the IRR; the cash multiple (or multiple of money); the NPV

Question 16

Use the tables for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010   Pro Forma Balance Sheet for Ideko, 2005-2010  
-Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation equity value of Ideko in 2010 is closest to:

Accepted Answer

A)  $181.7 million 
B)  $272.8 million 
C)  $152.8 million 
D)  $301.7 million 
A)  $181.7 million 
B)  $272.8 million 
C)  $152.8 million 
D)  $301.7 million

Question 17

Use the table for the question(s) below.
Capital Structure and Unlevered Beta Estimates for Comparable Firms  
-If the risk-free rate of interest is 6% and the market risk premium has historically averaged 5%,then the cost of capital for Nike is closest to:

Accepted Answer

A)  14.7% 
B)  10.2% 
C)  9.1% 
D)  13.5% 
A)  14.7% 
B)  10.2% 
C)  9.1% 
D)  13.5%

Question 18

Use the tables for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010   Pro Forma Balance Sheet for Ideko, 2005-2010  
-Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation levered P/E ratio of Ideko in 2010 is closest to:

Accepted Answer

A)  19.0 
B)  17.2 
C)  16.4 
D)  14.5 
A)  19.0 
B)  17.2 
C)  16.4 
D)  14.5

Question 19

Use the tables for the question(s) below.
Estimated 2005 Income Statement and Balance Sheet Data for Ideko Corporation   The following are financial ratios for three comparable companies:  
-Based upon the average EV/EBITDA ratio of the comparable firms,Ideko's target economic value is closest to:

Accepted Answer

A)  $191 million 
B)  $155 million 
C)  $157 million 
D)  $193 million 
E)  $165 million 
A)  $191 million 
B)  $155 million 
C)  $157 million 
D)  $193 million 
E)  $165 million

Question 20

We can use one-year Canadian Treasury Bill rate as ________ interest rate when we convert a unlevered beta to a cost of capital for an acquired firm.

Accepted Answer

A)  a risk-free 
B)  a nominal 
C)  a real 
D)  an effective 
A)  a risk-free 
B)  a nominal 
C)  a real 
D)  an effective

Exam 19: Valuation and Financial Modeling: a Case Study

Which of the following statements is correct?

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 Pro Forma Balance Sheet for Ideko, 2005-2010 -Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation equity value of Ideko in 2010 is closest to:

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 Pro Forma Balance Sheet for Ideko, 2005-2010 -Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation EV/Sales ratio of Ideko in 2010 is closest to:

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 Pro Forma Balance Sheet for Ideko, 2005-2010 -Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation unlevered P/E ratio of Ideko in 2010 is closest to:

Use the table for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 -The amount of the increase in net working capital for Ideko in 2007 is closest to:

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 Pro Forma Balance Sheet for Ideko, 2005-2010 -Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation enterprise value of Ideko in 2010 is closest to:

Use the table for the question(s) below. Capital Structure and Unlevered Beta Estimates for Comparable Firms -The unlevered beta for Oakley is closest to:

What is the purpose of the sensitivity analysis?

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 Pro Forma Balance Sheet for Ideko, 2005-2010 -Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation unlevered P/E ratio of Ideko in 2010 is closest to:

Use the table for the question(s) below. Ideko Sales and Operating Cost Assumptions -Based upon Ideko's Sales and Operating Cost Assumptions,what production capacity will Ideko require in 2007?

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 Pro Forma Balance Sheet for Ideko, 2005-2010 -Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation levered P/E ratio of Ideko in 2010 is closest to:

Use the table for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 -Using the income statement above and the following information: Calculate Ideko's Free Cash Flow to the Firm and Free Cash Flow to Equity in 2009.

Since Capital Cost Allowance (CCA)is a non-cash expense,the effect is to increase a company's ________.

While ________ method is the most reliable method when evaluating an acquisition investment,real-world practitioners often use ________ and ________ as alternative valuation metrics.

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 Pro Forma Balance Sheet for Ideko, 2005-2010 -Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation equity value of Ideko in 2010 is closest to:

Use the table for the question(s) below. Capital Structure and Unlevered Beta Estimates for Comparable Firms -If the risk-free rate of interest is 6% and the market risk premium has historically averaged 5%,then the cost of capital for Nike is closest to:

Use the tables for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 Pro Forma Balance Sheet for Ideko, 2005-2010 -Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation levered P/E ratio of Ideko in 2010 is closest to:

Use the tables for the question(s) below. Estimated 2005 Income Statement and Balance Sheet Data for Ideko Corporation The following are financial ratios for three comparable companies: -Based upon the average EV/EBITDA ratio of the comparable firms,Ideko's target economic value is closest to:

We can use one-year Canadian Treasury Bill rate as ________ interest rate when we convert a unlevered beta to a cost of capital for an acquired firm.

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Bonds

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress, managerial Incentives, and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Financial Options

Option Valuation

Real Options

The Mechanics of Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

Filters

While method is the most reliable method when evaluating an acquisition investment,real-world practitioners often use and as alternative valuation metrics.