ANALYZING FINANCIAL REPORTS WALL STREET
PREP COMPLETE ACTUAL EXAM 100
QUESTIONS AND CORRECT ANSWERS ALREADY
GRADED A+ | ANALYZING FINANCIAL REPORTS
ACTUAL EXAM FROM WALL STREET PREP
"enterprise (transaction) value represents the: - CORRECT ANSWER=> value of all capital invested
in a business"
"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"
"On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
outstanding. The company has net debt of $300 million. After building an earnings model for
Company X, you have projected free cash flow for each year through 2020 as follows:
Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final
projected year. Estimate the present value of the projected free cash flows through 2020,
discounted at the stated WACC. Assume all cash flows are generated at the end of the year (i.e.,
no mid-year adjustment): - CORRECT ANSWER=> 837 million"
"On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
outstanding. The
company has net debt of $300 million. After building an earnings model for Company X, you
have projected free
cash flow for each year through 2014 as follows:
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,Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
Calculate Company X's implied Enterprise Value by using the discounted cash flow method: -
CORRECT ANSWER=> 2951.2 million"
"On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
outstanding. The
company has net debt of $300 million. After building an earnings model for Company X, you
have projected free
cash flow for each year through 2014 as follows:
Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
According to the discounted cash flow valuation method, Company X shares are: - CORRECT
ANSWER=> .13 per share overvalued"
"the formula for discounting any specific period cash flow in period "t"is: - CORRECT ANSWER=>
cash flow from period "t" divided by (1+discount rate raised exponentially to "t""
"the terminal value of a business that grows indefinitely is calculated as follows - CORRECT
ANSWER=> cash flow from period "t+1" divided by (discount rate-growth rate)"
"the two-stage DCF model is: - CORRECT ANSWER=> where stage 1 is an explicit projection of free
cash flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows
beyond the explicit forecast period"
"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"
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, "the typical sell-side process - CORRECT ANSWER=> shorter than the buy side, buyer secures
financing, and doesn't involve id'ing potential issues to address such as ownership and unusual
equity structures, liabilities, etc."
"the following happened in a recent M&A transaction: 1. PP&E of the target company was
increased from its original book basis of $600 million to $800 million to reflect fair market value
for book purposes in accordance with the purchase method of accounting. 2. no "step-up" for
tax purposes. 3. original tax basis of $650 million. assuming a corporate tax rate of 35% for book
purposes, the company should record the following - CORRECT ANSWER=> A deferred tax liability
equal to $52.5 million"
"An acquisition creates shareholder value: - CORRECT ANSWER=> when a company acquires a
business whose fundamental value is higher than the purchase price"
"• 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"
"• 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=> "
"Pushdown accounting: - CORRECT ANSWER=> Refers to the establishment of a new accounting
and reporting basis in an acquired company's separate
financial statements"
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PREP COMPLETE ACTUAL EXAM 100
QUESTIONS AND CORRECT ANSWERS ALREADY
GRADED A+ | ANALYZING FINANCIAL REPORTS
ACTUAL EXAM FROM WALL STREET PREP
"enterprise (transaction) value represents the: - CORRECT ANSWER=> value of all capital invested
in a business"
"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"
"On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
outstanding. The company has net debt of $300 million. After building an earnings model for
Company X, you have projected free cash flow for each year through 2020 as follows:
Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final
projected year. Estimate the present value of the projected free cash flows through 2020,
discounted at the stated WACC. Assume all cash flows are generated at the end of the year (i.e.,
no mid-year adjustment): - CORRECT ANSWER=> 837 million"
"On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
outstanding. The
company has net debt of $300 million. After building an earnings model for Company X, you
have projected free
cash flow for each year through 2014 as follows:
1|Page
,Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
Calculate Company X's implied Enterprise Value by using the discounted cash flow method: -
CORRECT ANSWER=> 2951.2 million"
"On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
outstanding. The
company has net debt of $300 million. After building an earnings model for Company X, you
have projected free
cash flow for each year through 2014 as follows:
Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
According to the discounted cash flow valuation method, Company X shares are: - CORRECT
ANSWER=> .13 per share overvalued"
"the formula for discounting any specific period cash flow in period "t"is: - CORRECT ANSWER=>
cash flow from period "t" divided by (1+discount rate raised exponentially to "t""
"the terminal value of a business that grows indefinitely is calculated as follows - CORRECT
ANSWER=> cash flow from period "t+1" divided by (discount rate-growth rate)"
"the two-stage DCF model is: - CORRECT ANSWER=> where stage 1 is an explicit projection of free
cash flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows
beyond the explicit forecast period"
"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"
2|Page
, "the typical sell-side process - CORRECT ANSWER=> shorter than the buy side, buyer secures
financing, and doesn't involve id'ing potential issues to address such as ownership and unusual
equity structures, liabilities, etc."
"the following happened in a recent M&A transaction: 1. PP&E of the target company was
increased from its original book basis of $600 million to $800 million to reflect fair market value
for book purposes in accordance with the purchase method of accounting. 2. no "step-up" for
tax purposes. 3. original tax basis of $650 million. assuming a corporate tax rate of 35% for book
purposes, the company should record the following - CORRECT ANSWER=> A deferred tax liability
equal to $52.5 million"
"An acquisition creates shareholder value: - CORRECT ANSWER=> when a company acquires a
business whose fundamental value is higher than the purchase price"
"• 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"
"• 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=> "
"Pushdown accounting: - CORRECT ANSWER=> Refers to the establishment of a new accounting
and reporting basis in an acquired company's separate
financial statements"
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