Wall street Prep Valuation Questions
(Latest Updates) Questions
and Answers {Grade A } 100% Correct
(Verified Answers)
What is Comparable Company Analysis ("Trading Comps")? - correct answer Trading
comps value a company based on how similar publicly-traded companies are currently
being valued at by the market.
What is Comparable Transactions Analysis ("Transaction Comps")? - correct answer
Transaction comps value a company based on the amount buyers paid to acquire
similar companies in recent years.
What is Discounted Cash Flow Analysis ("DCF")? - correct answer DCFs value a
company based on the premise that its value is a function of its projected cash flows,
discounted at an appropriate rate that reflects the risk of those cash flows.
, Wall street Prep Valuation Questions
(Latest Updates) Questions
and Answers {Grade A } 100% Correct
(Verified Answers)
What is Leveraged Buyout Analysis ("LBO")? - correct answer An LBO will look at a
potential acquisition target under a highly leveraged scenario to determine the
maximum purchase price the firm would be willing to pay.
What is Liquidation Analysis? - correct answer Liquidation analysis is used for
companies under (or near) distress and values the assets of the company under a
hypothetical, worst-case scenario liquidation.
Among the DCF, comparable companies analysis, and transaction comps, which
approach yields the highest valuation? - correct answer Transaction comps analysis
often yields the highest valuation because it looks at valuations for companies that
, Wall street Prep Valuation Questions
(Latest Updates) Questions
and Answers {Grade A } 100% Correct
(Verified Answers)
have been acquired, which factor in control premiums. Control premiums can often be
quite significant and as high as 25% to 50% above market prices. Thus, the multiples
derived from this analysis and the resulting valuation are usually higher than a
straight trading comps valuation or a standalone DCF valuation.
Which of the valuation methodologies is the most variable in terms of output? - correct
answer Because of its reliance on forward-looking projections and discretionary
assumptions, the DCF is the most variable out of the different valuation methodologies.
Relative valuation methodologies such as trading and transaction comps are based on
the actual prices paid for similar companies. While there'll be some discretion
involved, the valuations derived from comps deviate to a lesser extent than DCF
models.
, Wall street Prep Valuation Questions
(Latest Updates) Questions
and Answers {Grade A } 100% Correct
(Verified Answers)
Contrast the discounted cash flow (DCF) approach to the trading comps approach. -
correct answer Discounted Cash Flow (DCF)
Advantages
- The DCF values a company based on the company's forecasted cash flows.
- This approach is viewed as the most direct and academically rigorous way to
measure value.
- Considered to be independent of the market and instead based on the fundamentals
of the company.
Disadvantages
(Latest Updates) Questions
and Answers {Grade A } 100% Correct
(Verified Answers)
What is Comparable Company Analysis ("Trading Comps")? - correct answer Trading
comps value a company based on how similar publicly-traded companies are currently
being valued at by the market.
What is Comparable Transactions Analysis ("Transaction Comps")? - correct answer
Transaction comps value a company based on the amount buyers paid to acquire
similar companies in recent years.
What is Discounted Cash Flow Analysis ("DCF")? - correct answer DCFs value a
company based on the premise that its value is a function of its projected cash flows,
discounted at an appropriate rate that reflects the risk of those cash flows.
, Wall street Prep Valuation Questions
(Latest Updates) Questions
and Answers {Grade A } 100% Correct
(Verified Answers)
What is Leveraged Buyout Analysis ("LBO")? - correct answer An LBO will look at a
potential acquisition target under a highly leveraged scenario to determine the
maximum purchase price the firm would be willing to pay.
What is Liquidation Analysis? - correct answer Liquidation analysis is used for
companies under (or near) distress and values the assets of the company under a
hypothetical, worst-case scenario liquidation.
Among the DCF, comparable companies analysis, and transaction comps, which
approach yields the highest valuation? - correct answer Transaction comps analysis
often yields the highest valuation because it looks at valuations for companies that
, Wall street Prep Valuation Questions
(Latest Updates) Questions
and Answers {Grade A } 100% Correct
(Verified Answers)
have been acquired, which factor in control premiums. Control premiums can often be
quite significant and as high as 25% to 50% above market prices. Thus, the multiples
derived from this analysis and the resulting valuation are usually higher than a
straight trading comps valuation or a standalone DCF valuation.
Which of the valuation methodologies is the most variable in terms of output? - correct
answer Because of its reliance on forward-looking projections and discretionary
assumptions, the DCF is the most variable out of the different valuation methodologies.
Relative valuation methodologies such as trading and transaction comps are based on
the actual prices paid for similar companies. While there'll be some discretion
involved, the valuations derived from comps deviate to a lesser extent than DCF
models.
, Wall street Prep Valuation Questions
(Latest Updates) Questions
and Answers {Grade A } 100% Correct
(Verified Answers)
Contrast the discounted cash flow (DCF) approach to the trading comps approach. -
correct answer Discounted Cash Flow (DCF)
Advantages
- The DCF values a company based on the company's forecasted cash flows.
- This approach is viewed as the most direct and academically rigorous way to
measure value.
- Considered to be independent of the market and instead based on the fundamentals
of the company.
Disadvantages
