Question 1

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: 
-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

The answer of Use the tables for the question(s) below.
Estimated...

Question 2

The cash multiple does not depend on the amount of time it takes to receive the cash,nor does it account for the risk of the investment.It is therefore useful only for comparing deals

Accepted Answer

A)  with different time horizons and different risk levels. 
B)  with similar time horizons and different risk levels. 
C)  with similar time horizons and similar risk levels. 
D)  with different time horizons and similar risk levels.

Question 3

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 2007.

Accepted Answer

The answer of Use the table for the question(s) below.
Pro...

Question 4

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)  20% lower 
B)  10% higher 
C)  20% higher 
D)  10% lower

Question 5

Ideko's Accounts Receivable Days is closest to:

Accepted Answer

A)  84 days 
B)  95 days 
C)  90 days 
D)  75 days

Question 6

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

Question 7

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 Oakley is closest to:

Accepted Answer

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

Question 8

Use the table for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010 
-With the proper changes it is believed that Ideko's credit policies will allow for an account receivables days of 60.The forecasted accounts receivable for Ideko in 2006 is closest to:

Accepted Answer

A)  $19,690 
B)  $16,970 
C)  22,710 
D)  $14,525

Question 9

Goodwill is created only when a business is acquired and the amount paid for the business is ________ the value of the assets purchased.

Accepted Answer

A)  greater than 
B)  smaller than 
C)  equal to 
D)  none of the above.

Question 10

Use the table for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010 
-The amount of net working capital for Ideko in 2006 is closest to:

Accepted Answer

A)  $22,750 
B)  $35,195 
C)  $30,510 
D)  $26,420

Question 11

According to the Canadian Institute of Chartered Accountants (CICA)handbook,a firm's goodwill is not necessarily amortized but it is subject to ________ at least once a year.

Accepted Answer

A)  an impairment test 
B)  an impairment charge 
C)  an asset valuation 
D)  a capital asset valuation

Question 12

Use the table for the question(s) below.
Capital Structure and Unlevered Beta Estimates for Comparable Firms 
-Describe the major approach in estimating the cost of capital when attempting to valuate an acquisition of a private firm.

Accepted Answer

The answer of Use the table for the question(s) below.
Capital...

Question 13

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

Accepted Answer

A)  $30,510 
B)  $26,420 
C)  $22,170 
D)  $35,195

Question 14

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

Question 15

Use the table for the question(s) below.
Pro Forma Income Statement for Ideko, 2005-2010 
-With the proper changes it is believed that Ideko's credit policies will allow for an account receivables days of 60.The forecasted accounts receivable for Ideko in 2007 is closest to:

Accepted Answer

A)  $14,525 
B)  $16,970 
C)  22,710 
D)  $19,690

Question 16

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 2008 is closest to:

Accepted Answer

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

Question 17

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

Question 18

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

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

Accepted Answer

The answer of Use the tables for the question(s) below.
Estimated...

Question 20

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

Exam 19: Valuation and Financial Modeling: a Case Study

The cash multiple does not depend on the amount of time it takes to receive the cash,nor does it account for the risk of the investment.It is therefore useful only for comparing deals

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 2007.

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 ________.

Ideko's Accounts Receivable Days is closest to:

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 -If the risk-free rate of interest is 6% and the market risk premium has historically averaged 5%,then the cost of capital for Oakley is closest to:

Use the table for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 -With the proper changes it is believed that Ideko's credit policies will allow for an account receivables days of 60.The forecasted accounts receivable for Ideko in 2006 is closest to:

Goodwill is created only when a business is acquired and the amount paid for the business is ________ the value of the assets purchased.

Use the table for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 -The amount of net working capital for Ideko in 2006 is closest to:

According to the Canadian Institute of Chartered Accountants (CICA) handbook,a firm's goodwill is not necessarily amortized but it is subject to ________ at least once a year.

Use the table for the question(s) below. Capital Structure and Unlevered Beta Estimates for Comparable Firms -Describe the major approach in estimating the cost of capital when attempting to valuate an acquisition of a private firm.

Use the table for the question(s) below. Pro Forma Income Statement for Ideko, 2005-2010 -The amount of net working capital for Ideko in 2007 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 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. Pro Forma Income Statement for Ideko, 2005-2010 -With the proper changes it is believed that Ideko's credit policies will allow for an account receivables days of 60.The forecasted accounts receivable for Ideko in 2007 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 2008 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/Sales ratio of the comparable firms,Ideko's target economic value is closest to:

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