Wall Street Prep Premium Exam
• Acquirer purchases 100% of target by issuing additional stock to purchase target shares
• No premium is offered to the current target share price
• Acquirer share price at announcement is $30
• Target share price at announcement is $50
• Acquirer EPS next year is $3.00
• Target EPS next year is $2.00
• Acquirer has 4 thousand shares outstanding
• Target has 2 thousand shares outstanding
Assuming a 40% tax rate, what are the necessary pre-tax synergies needed to break-even? - Correct Answer
• Acquirer purchases 100% of target by issuing additional stock to purchase target shares
• No premium is offered to the current target share price
• Acquirer share price at announcement is $30
• Target share price at announcement is $50
• Acquirer EPS next year is $3.00
• Target EPS next year is $2.00
• Acquirer has 4 thousand shares outstanding
• Target has 2 thousand shares outstanding
What is the exchange ratio for the deal? - Correct Answer 1.7x
a 10-q financial filing has all of the following characteristics except - Correct Answer issued four times a year.
A 338(h)(10) election: - Correct Answer Requires that both buyer and seller must jointly elect to have the IRS deem
the acquisition an asset sale for
tax purposes
A company has the following information, 1. 2014 revenues of $5 billion,2013 Accounts receivable of $400 million,
2014 accounts receivable of $600 million, what are the days sales outstanding - Correct Answer 36.5
A company has the following information:
• 2013 retained earnings balance of $12 billion
• Net income of $3.5 billion in 2014
• Capex of $200 million in 2014
• Preferred dividends of $100 million in 2014
• Common dividends of $400 million in 2014
What is the retained earnings balance at the end of 2014? - Correct Answer 15 billion
A company has the following information:
• 2014 Revenues of $8 billion
• 2014 COGS of $5 billion
• 2013 Accounts receivable of $400 million
• 2014 Accounts receivable of $600 million
• 2013 Inventories of $1 billion
• 2014 Inventories of $800 million
• 2013 Accounts payable of $250 million
• 2014 Accounts payable of $300 million
What are the inventory days for the company? - Correct Answer 65.7 days
A company has the following information:
• 2014 share repurchase plan of $4 billion
• Average share price of $60 for the year 2013
• Expected EPS growth for 2014 of 10%
What should the number of shares repurchased by the company be in your financial model? - Correct Answer 60.6
million
A debt holder would be primarily concerned with which of the following multiples?
I. Enterprise (Transaction) Value / EBITDA
, II. Price/Earnings
III. Enterprise (Transaction) Value / Sales - Correct Answer 1 and 3 only
A debt holder would be primarily concerned with which of the following multiples?
I. Enterprise (Transaction) Value / EBITDA
II. Price/Earnings
III. Enterprise (Transaction) Value / Sales - Correct Answer one and three only
A good LBO candidate has which of the following characteristics? - Correct Answer Little to no existing leverage,
steady cash flows and little investment in business through capex and working capital
An acquisition creates shareholder value: - Correct Answer when a company acquires a business whose fundamental
value is higher than the purchase price
Company A shares are currently trading at $20 per share. A survey of Wall Street analysts reveals that EPS
expectations for Company A for the full year 2014 are $1.50 per share. Company A has 200 million diluted shares
outstanding. Company A's major competitors are trading at an average share price / 2014 Expected EPS of 15.0x.
Using the comparable company analysis valuation method, Company A shares are: - Correct Answer 2.5 per share
undervalued
Company A shares are currently trading at $50 per share. A survey of Wall Street analysts reveals that EPS
expectations for Company A for the full year 2014 are $2.50 per share. Company A has 300 million diluted shares
outstanding. Company A's major competitors are trading at an average share price / 2014 Expected EPS of 23.0x.
Using the comparable company analysis valuation method, Company A shares are: - Correct Answer 7.5 per share
undervalued
Company X's current assets increased by $40 million from 2007-2008 while the companies current liabilities
increased by $25 million over the same period. the cash impact of the change in working capital was - Correct
Answer a decrease of 15 million
Depreciation Expense found in the SG&A line of the income statement for a manufacturing firm would most likely be
attributable to which of the following - Correct Answer computers used by the accounting department
disadvantages of a DCF do not include - Correct Answer free cash flows over the first 5-10 year period represent a
significant portion of value and are highly sensitive to valuation assumptions
enterprise (transaction) value represents the: - Correct Answer value of all capital invested in a business
Garth's Micro Brewery, whose shares are currently trading at $40 per share, is considering acquiring Wayne's
Beer Bottling Co. You have compiled a group of comparable transactions within the beer bottling space and have
calculated that since 2014, acquisitions similar (or comparable!) to the one Garth's is currently considering have
had transaction values (offer value of target plus any target debt, net of cash) that are, on average, 8.0x target's
EBITDA.
• Wayne's shares currently trade at $34 per share
• Wayne's has 50 million diluted shares outstanding
• Wayne's LTM EBITDA was $250 million
• Wayne's Net Debt was $200 million
What is the offer value per share and the offer premium? - Correct Answer $36.00 per share; 5.9%
If a company has projected revenues of $10 billion, a gross profit margin of 65%, and projected SG&A expenses of
$2billion, what is the company's operating (EBIT) margin? - Correct Answer 45%
in order to find out how much cash is available to pay down short term debt, such as revolving credit line, you must
take - Correct Answer beginning cash balance + pre-debt cash flows - min. cash balance - required principal
payments of LT and other debt
LTM (Last Twelve Months) is calculated as follows - Correct Answer Latest completed fiscal year results + Latest
reported stub period results - Same stub period results from one year ago
non-controlling interest - Correct Answer is an expense on the income statement and equity o the balance sheet
• Acquirer purchases 100% of target by issuing additional stock to purchase target shares
• No premium is offered to the current target share price
• Acquirer share price at announcement is $30
• Target share price at announcement is $50
• Acquirer EPS next year is $3.00
• Target EPS next year is $2.00
• Acquirer has 4 thousand shares outstanding
• Target has 2 thousand shares outstanding
Assuming a 40% tax rate, what are the necessary pre-tax synergies needed to break-even? - Correct Answer
• Acquirer purchases 100% of target by issuing additional stock to purchase target shares
• No premium is offered to the current target share price
• Acquirer share price at announcement is $30
• Target share price at announcement is $50
• Acquirer EPS next year is $3.00
• Target EPS next year is $2.00
• Acquirer has 4 thousand shares outstanding
• Target has 2 thousand shares outstanding
What is the exchange ratio for the deal? - Correct Answer 1.7x
a 10-q financial filing has all of the following characteristics except - Correct Answer issued four times a year.
A 338(h)(10) election: - Correct Answer Requires that both buyer and seller must jointly elect to have the IRS deem
the acquisition an asset sale for
tax purposes
A company has the following information, 1. 2014 revenues of $5 billion,2013 Accounts receivable of $400 million,
2014 accounts receivable of $600 million, what are the days sales outstanding - Correct Answer 36.5
A company has the following information:
• 2013 retained earnings balance of $12 billion
• Net income of $3.5 billion in 2014
• Capex of $200 million in 2014
• Preferred dividends of $100 million in 2014
• Common dividends of $400 million in 2014
What is the retained earnings balance at the end of 2014? - Correct Answer 15 billion
A company has the following information:
• 2014 Revenues of $8 billion
• 2014 COGS of $5 billion
• 2013 Accounts receivable of $400 million
• 2014 Accounts receivable of $600 million
• 2013 Inventories of $1 billion
• 2014 Inventories of $800 million
• 2013 Accounts payable of $250 million
• 2014 Accounts payable of $300 million
What are the inventory days for the company? - Correct Answer 65.7 days
A company has the following information:
• 2014 share repurchase plan of $4 billion
• Average share price of $60 for the year 2013
• Expected EPS growth for 2014 of 10%
What should the number of shares repurchased by the company be in your financial model? - Correct Answer 60.6
million
A debt holder would be primarily concerned with which of the following multiples?
I. Enterprise (Transaction) Value / EBITDA
, II. Price/Earnings
III. Enterprise (Transaction) Value / Sales - Correct Answer 1 and 3 only
A debt holder would be primarily concerned with which of the following multiples?
I. Enterprise (Transaction) Value / EBITDA
II. Price/Earnings
III. Enterprise (Transaction) Value / Sales - Correct Answer one and three only
A good LBO candidate has which of the following characteristics? - Correct Answer Little to no existing leverage,
steady cash flows and little investment in business through capex and working capital
An acquisition creates shareholder value: - Correct Answer when a company acquires a business whose fundamental
value is higher than the purchase price
Company A shares are currently trading at $20 per share. A survey of Wall Street analysts reveals that EPS
expectations for Company A for the full year 2014 are $1.50 per share. Company A has 200 million diluted shares
outstanding. Company A's major competitors are trading at an average share price / 2014 Expected EPS of 15.0x.
Using the comparable company analysis valuation method, Company A shares are: - Correct Answer 2.5 per share
undervalued
Company A shares are currently trading at $50 per share. A survey of Wall Street analysts reveals that EPS
expectations for Company A for the full year 2014 are $2.50 per share. Company A has 300 million diluted shares
outstanding. Company A's major competitors are trading at an average share price / 2014 Expected EPS of 23.0x.
Using the comparable company analysis valuation method, Company A shares are: - Correct Answer 7.5 per share
undervalued
Company X's current assets increased by $40 million from 2007-2008 while the companies current liabilities
increased by $25 million over the same period. the cash impact of the change in working capital was - Correct
Answer a decrease of 15 million
Depreciation Expense found in the SG&A line of the income statement for a manufacturing firm would most likely be
attributable to which of the following - Correct Answer computers used by the accounting department
disadvantages of a DCF do not include - Correct Answer free cash flows over the first 5-10 year period represent a
significant portion of value and are highly sensitive to valuation assumptions
enterprise (transaction) value represents the: - Correct Answer value of all capital invested in a business
Garth's Micro Brewery, whose shares are currently trading at $40 per share, is considering acquiring Wayne's
Beer Bottling Co. You have compiled a group of comparable transactions within the beer bottling space and have
calculated that since 2014, acquisitions similar (or comparable!) to the one Garth's is currently considering have
had transaction values (offer value of target plus any target debt, net of cash) that are, on average, 8.0x target's
EBITDA.
• Wayne's shares currently trade at $34 per share
• Wayne's has 50 million diluted shares outstanding
• Wayne's LTM EBITDA was $250 million
• Wayne's Net Debt was $200 million
What is the offer value per share and the offer premium? - Correct Answer $36.00 per share; 5.9%
If a company has projected revenues of $10 billion, a gross profit margin of 65%, and projected SG&A expenses of
$2billion, what is the company's operating (EBIT) margin? - Correct Answer 45%
in order to find out how much cash is available to pay down short term debt, such as revolving credit line, you must
take - Correct Answer beginning cash balance + pre-debt cash flows - min. cash balance - required principal
payments of LT and other debt
LTM (Last Twelve Months) is calculated as follows - Correct Answer Latest completed fiscal year results + Latest
reported stub period results - Same stub period results from one year ago
non-controlling interest - Correct Answer is an expense on the income statement and equity o the balance sheet
