Deck 15: Valuation

Question 1

Which of the following is true:

A)FCF = EBITDA - CE - CWC + CTP
B)FCF = EBITDA - CE - CWC - CTP
C)FCF = EBITDA - CE + CWC + CTP
D)None of these

Answer 1

B

Question 2

When multiples are derived from an analysis of historical earnings, they are referred to as trailing multiples.

Answer 2

True

Question 3

The net effect of arbitrage buying is to increase the price while also increasing the probability that the company will be taken over.

Answer 3

True

Question 4

Research shows:

A)Target shareholders earn positive returns from merger agreements
B)Target shareholders may earn even higher significant positive returns from tender offers than friendly mergers
C)Target bondholders and preferred stockholders gain from takeovers
D)All of these
E)Both a and b
F)Both b and c

Question 5

The discount rate used to discount future cash flows should:

A)Be equal to yield on long-term U.S.Treasuries
B)Be 2% greater than yield on long-term U.S.Treasuries
C)Incorporate a risk premium equal to perceived risks and volatility of future cash flow stream
D)Usually will be 1% greater than yield on high-yield bonds

Question 6

Moeller, Schlingemann, and Stulz's research shows that during the period 1998-2001, acquiring firm shareholders gained a total of $240 billion!

Question 7

Which of the following factors will influence the initial potential dilution of earnings per share?

A)Differential in P/E ratios
B)Relative size of the two firms as measured by earnings
C)Taxability of target earnings
D)All of the above
E)Both a and b

Question 8

Acquiring firm shareholders tend to earn zero or negative returns from mergers.

Question 9

Research by Roach showed:

A)Merger premiums have risen over time
B)Strategic mergers provide more synergistic benefits
C)Strategic focus is not a determinant of merger premiums.
D)All of these
E)Both a and b

Question 10

For the bidder to enjoy an increase in EPS following a series of acquisitions, and in effect, play the P/E game, the following must be true:

A)Post-deal P/E ratio must not decline
B)Acquirer must pay continually lower premiums with each deal
C)The bidder must make fewer deals over time
D)None of the above

Question 11

Business valuation is as much of an art as it is a science.

Question 12

Research by Kaplan and Ruback found that:

A)Median estimates of the DCF were within 10% of the market values
B)Comparable multiples yielded significantly higher values than DCF measures
C)Comparable multiples yielded significantly lower values than DCF measures
D)None of these

Question 13

For a company with positive debt:

A)Enterprise value is less then equity value
B)Enterprise value equals equity value
C)Enterprise value is more than equity value
D)None of these

Question 14

For many years the concentrated holdings by large block holders made hostile takeovers in Europe more difficult to complete.

Question 15

A study by Varaiya showed the following about takeover premiums:

A)Significant support for the role of competitive forces in the auction process in determining premiums
B)Significant role for antitakeover measures in determining premiums
C)Mixed results for the role of anticipated benefits
D)All of the above
E)Both b and c

Question 16

In Rau and Vermaelen's research, glamour firms have high book to market value ratios.

Question 17

In bear markets, control premiums (relative to current market prices)) may rise.

Question 18

In thin markets float shares are not as plentiful.

Question 19

Continuing value and exit value mean the same thing.

Question 20

Which of the following are desirable characteristics of targets?

A)Rapidly growing cash flows and earnings
B)Low P/E ratios
C)Market value less than book value
D)All of the above
True or False