Question 1

As an intangible asset,goodwill is ________ over time as its value ________.

Accepted Answer

A)  amortized; grows 
B)  not amortized; declines 
C)  amortized; declines 
D)  not amortized; grows 
A)  amortized; grows 
B)  not amortized; declines 
C)  amortized; declines 
D)  not amortized; grows B

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 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 C

Question 3

Describe the major approach in estimating the cost of capital when attempting to evaluate an acquisition of a private firm.

Accepted Answer

First,use the techniques developed in risk and return to estimate the equity cost of capital.Second,estimate the unlevered cost of capital for each firm based on its capital structure.The unlevered costs of capital of the comparable firms are next used to estimate unlevered cost of capital.Once this estimate is accomplished,capital structure can be applied to determine its equity cost of capital or WACC,depending on the valuation method employed.

Question 4

To assess whether an acquisition is attractive requires a careful analysis both of ________ aspects of the firm and of the ________ the deal is expected to generate and the return that should be required.

Accepted Answer

A)  the operational; ultimate revenues 
B)  the operational; ultimate cash flows 
C)  the marketing; ultimate cash flows 
D)  the marketing; ultimate revenues 
A)  the operational; ultimate revenues 
B)  the operational; ultimate cash flows 
C)  the marketing; ultimate cash flows 
D)  the marketing; ultimate revenues

Question 5

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

Accepted Answer

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

Question 6

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 2008?

Accepted Answer

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

Question 7

Since Capital Cost Allowance (CCA)is a non-cash expense,its 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 8

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 P/E ratio of the comparable firms,Ideko's target market value of equity is closest to:

Accepted Answer

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

Question 9

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 10

Since 1960,the average annual return of the value-weighted market portfolio of U.S.stocks has exceeded that of one-year Treasuries by approximately 5%.In Canada,this number has been about ________.

Accepted Answer

A)  4% 
B)  5% 
C)  6% 
D)  7% 
A)  4% 
B)  5% 
C)  6% 
D)  7%

Question 11

What range for the market value of equity for Ideko is implied by the range of P/E multiples for the comparable firms?

Accepted Answer

Low P/E (Nike)= 18.2
Low Price

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 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

Question 13

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)  28.6 
A)  17.2 
B)  16.4 
C)  14.5 
D)  28.6

Question 14

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 15

What range for the market value of equity for Ideko is implied by the range of EV/EBITDA multiples for the comparable firms if Ideko holds $6.5 million of cash in excess of its working capital needs?

Accepted Answer

Low EV/EBITDA (Nike)= 9.3
Low EV = EBITD

Question 16

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 17

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 cash multiple; the NPV; the IRR 
D)  none of the above 
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 cash multiple; the NPV; the IRR 
D)  none of the above

Question 18

Capital Cost Allowance (CCA)reduces a firm's ________ but increases a firm's ________.

Accepted Answer

A)  revenue; cash flows 
B)  net income; cash flows 
C)  net income; total costs 
D)  revenue; total costs 
A)  revenue; cash flows 
B)  net income; cash flows 
C)  net income; total costs 
D)  revenue; total costs

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/Sales ratio of the comparable firms,Ideko's target economic value is closest to:

Accepted Answer

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

Question 20

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 2009?

Accepted Answer

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

Exam 22: Valuation and Financial Modelling: a Case Study

As an intangible asset,goodwill is ________ over time as its value ________.

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:

Describe the major approach in estimating the cost of capital when attempting to evaluate an acquisition of a private firm.

To assess whether an acquisition is attractive requires a careful analysis both of ________ aspects of the firm and of the ________ the deal is expected to generate and the return that should be required.

Use the table for the question(s) below. Capital Structure and Unlevered Beta Estimates for Comparable Firms -The unlevered beta for Nike 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 2008?

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

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 P/E ratio of the comparable firms,Ideko's target market value of equity 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:

Since 1960,the average annual return of the value-weighted market portfolio of U.S.stocks has exceeded that of one-year Treasuries by approximately 5%.In Canada,this number has been about ________.

What range for the market value of equity for Ideko is implied by the range of P/E multiples for the comparable firms?

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 unlevered P/E 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 8.5,then the continuation levered P/E ratio of Ideko in 2010 is closest to:

What range for the market value of equity for Ideko is implied by the range of EV/EBITDA multiples for the comparable firms if Ideko holds $6.5 million of cash in excess of its working capital needs?

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?

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

Capital Cost Allowance (CCA)reduces a firm's ________ but increases a firm's ________.

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,Ideko's target economic value 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 2009?

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

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

Financial Options

Option Valuation

Real Options

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress, managerial Incentives, and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

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

As an intangible asset,goodwill is over time as its value .

To assess whether an acquisition is attractive requires a careful analysis both of aspects of the firm and of the the deal is expected to generate and the return that should be required.

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

Capital Cost Allowance (CCA)reduces a firm's but increases a firm's .