Adventis FMC Level 2 UPDATED Actual
Exam Questions and CORRECT Answers
what is value - CORRECT ANSWER✔✔- what people are willing to pay for (what the buyer
pays)
who said, "Value is what people are willing to pay for" - CORRECT ANSWER✔✔- John
Naisbitt
2 primary types of valuation - CORRECT ANSWER✔✔- 1. relative valuation
2. intrinsic valuation
relative valuation refers to what - CORRECT ANSWER✔✔- methods that compare the price
of a company to the market value of similar assets
intrinsic value refers to what - CORRECT ANSWER✔✔- the value of a company through
fundamental analysis without reference to its market value but instead around its ability to
generate cash flow
in an M&A context, what is EV - CORRECT ANSWER✔✔- transaction value
in an M&A context, what is equity value - CORRECT ANSWER✔✔- purchase price
a company sold for $100M and the company being bought had $15M of debt and $2M of
cash, what happens and what is the transaction value and purchase price - CORRECT
ANSWER✔✔- - the $2M would be used by shareholders of the acquired company to pay
down existing $15M in debt to make $13M in debt now (15 - 2 = 13)
- the proceeds from the deal would then be used to pay down the remaining debt (EV = CS +
PS + Debt - Cash)
- Result is 100 - 13 = 87
- TV = $100M
- Purchase price = $87 (check to shareholders of acquired company)
, 2 primary types of relative valuation - CORRECT ANSWER✔✔- 1. comparable company
analysis
2. acquisition comparables analysis
comparable companies analyses (public trading comparables analyses) - CORRECT
ANSWER✔✔- - most common types of relative valuation
- these methods allow investors to compare valuation of similar companies by comparing
similar ratios
most common public trading comparable ratios - CORRECT ANSWER✔✔- 1. EV/EBITDA
2. EV/Revenue
3. Net income/Earnings (share price/earnings per share)
assume a company has $5M of EBITDA and two public companies most similar to the
company trade at 6.0x and 7.0x EBITDA, what might you conclude - CORRECT
ANSWER✔✔- - Ex: 7.0 = x/5 ; 6.0 = x/5
- can conclude that EV for the company should be between 30-35 million
what happens when a company trades at a multiple that is a premium or a discount to the
industry average - CORRECT ANSWER✔✔- investors will dig in to understand the rationale
assume that a company trades at 7.0x EBITDA but the average of comparable companies is
9.0x, what can we conclude - CORRECT ANSWER✔✔- the company is being undervalued
and the investor will look to buy shares because he realizes that the share price will increase
Wall St. begins to value the company in-line with its peers
acquisition comparables analysis (transaction comparables analysis) - CORRECT
ANSWER✔✔- represent comparable acquisitions that have taken place and have been
publicly announced
are multiples for acquisition comparables higher or lower than mulitples for comparable
companies - CORRECT ANSWER✔✔- higher because acquirers need to pay a premium to
the current share price to gain control of the company
Exam Questions and CORRECT Answers
what is value - CORRECT ANSWER✔✔- what people are willing to pay for (what the buyer
pays)
who said, "Value is what people are willing to pay for" - CORRECT ANSWER✔✔- John
Naisbitt
2 primary types of valuation - CORRECT ANSWER✔✔- 1. relative valuation
2. intrinsic valuation
relative valuation refers to what - CORRECT ANSWER✔✔- methods that compare the price
of a company to the market value of similar assets
intrinsic value refers to what - CORRECT ANSWER✔✔- the value of a company through
fundamental analysis without reference to its market value but instead around its ability to
generate cash flow
in an M&A context, what is EV - CORRECT ANSWER✔✔- transaction value
in an M&A context, what is equity value - CORRECT ANSWER✔✔- purchase price
a company sold for $100M and the company being bought had $15M of debt and $2M of
cash, what happens and what is the transaction value and purchase price - CORRECT
ANSWER✔✔- - the $2M would be used by shareholders of the acquired company to pay
down existing $15M in debt to make $13M in debt now (15 - 2 = 13)
- the proceeds from the deal would then be used to pay down the remaining debt (EV = CS +
PS + Debt - Cash)
- Result is 100 - 13 = 87
- TV = $100M
- Purchase price = $87 (check to shareholders of acquired company)
, 2 primary types of relative valuation - CORRECT ANSWER✔✔- 1. comparable company
analysis
2. acquisition comparables analysis
comparable companies analyses (public trading comparables analyses) - CORRECT
ANSWER✔✔- - most common types of relative valuation
- these methods allow investors to compare valuation of similar companies by comparing
similar ratios
most common public trading comparable ratios - CORRECT ANSWER✔✔- 1. EV/EBITDA
2. EV/Revenue
3. Net income/Earnings (share price/earnings per share)
assume a company has $5M of EBITDA and two public companies most similar to the
company trade at 6.0x and 7.0x EBITDA, what might you conclude - CORRECT
ANSWER✔✔- - Ex: 7.0 = x/5 ; 6.0 = x/5
- can conclude that EV for the company should be between 30-35 million
what happens when a company trades at a multiple that is a premium or a discount to the
industry average - CORRECT ANSWER✔✔- investors will dig in to understand the rationale
assume that a company trades at 7.0x EBITDA but the average of comparable companies is
9.0x, what can we conclude - CORRECT ANSWER✔✔- the company is being undervalued
and the investor will look to buy shares because he realizes that the share price will increase
Wall St. begins to value the company in-line with its peers
acquisition comparables analysis (transaction comparables analysis) - CORRECT
ANSWER✔✔- represent comparable acquisitions that have taken place and have been
publicly announced
are multiples for acquisition comparables higher or lower than mulitples for comparable
companies - CORRECT ANSWER✔✔- higher because acquirers need to pay a premium to
the current share price to gain control of the company
