Adventis FMC Level 2 with Complete Solutions |
Already Passed| Verified
why is tax-effected EBIT used rather than net income - ✔✔- the valuation should not depend on
capital structure
- applying the tax-rate directly to EBIT without subtracting interest expense eliminates the impact
of capital structure to cash flow
cash flow is projected out in the projection period which is typically... - ✔✔5 years but could be 10
years for startups
the analyst should end the model with a financial year representative of a... - ✔✔steady state to
ensure the analysis does not over or understate total valuation
first component of determining the present value of a company is - ✔✔calculate each unlevered
FCF's PV by discounting them using the discount rate (cost of capital)
two methods for determining terminal value - ✔✔1. perpetuity method
2. EBITDA exit multiple method
perpetuity method assumes that the
FCF in the last year of the projection period... - ✔✔will grow into perpetuity at an annual rate of
growth (2-3%)
, in practice, you would typically expect to see perpetuity growth do what when a company matures -
✔✔decline
to calculate the terminal value under the perpetuity growth method, what model is used -
✔✔Gordon-Growth Model
the Gordon-Growth Model rests on the assumption that... - ✔✔CF of the last period will stabilize and
continue at the same rate of growth forever
perpetuity growth rate represents - ✔✔an average growth rate
perpetuity growth rate can't exceed what - ✔✔local inflation rate because that would signify that
the company would eventually grow to be larger than the entire domestic economy
EBITDA exit multiple assumes... - ✔✔that the company is sold in the last year of the projection period
at a multiple of EBITDA
what will investors do with these two methods - ✔✔use one method and back into an implied value
for the other method as a check
if a 12.0x EBITDA exit multiple implies a 5% perpetuity growth rate, what can be said - ✔✔the
exit multiple could be considered unrealistic
formula for PV of projection period - ✔✔PV = FV/(1+r)^N
Already Passed| Verified
why is tax-effected EBIT used rather than net income - ✔✔- the valuation should not depend on
capital structure
- applying the tax-rate directly to EBIT without subtracting interest expense eliminates the impact
of capital structure to cash flow
cash flow is projected out in the projection period which is typically... - ✔✔5 years but could be 10
years for startups
the analyst should end the model with a financial year representative of a... - ✔✔steady state to
ensure the analysis does not over or understate total valuation
first component of determining the present value of a company is - ✔✔calculate each unlevered
FCF's PV by discounting them using the discount rate (cost of capital)
two methods for determining terminal value - ✔✔1. perpetuity method
2. EBITDA exit multiple method
perpetuity method assumes that the
FCF in the last year of the projection period... - ✔✔will grow into perpetuity at an annual rate of
growth (2-3%)
, in practice, you would typically expect to see perpetuity growth do what when a company matures -
✔✔decline
to calculate the terminal value under the perpetuity growth method, what model is used -
✔✔Gordon-Growth Model
the Gordon-Growth Model rests on the assumption that... - ✔✔CF of the last period will stabilize and
continue at the same rate of growth forever
perpetuity growth rate represents - ✔✔an average growth rate
perpetuity growth rate can't exceed what - ✔✔local inflation rate because that would signify that
the company would eventually grow to be larger than the entire domestic economy
EBITDA exit multiple assumes... - ✔✔that the company is sold in the last year of the projection period
at a multiple of EBITDA
what will investors do with these two methods - ✔✔use one method and back into an implied value
for the other method as a check
if a 12.0x EBITDA exit multiple implies a 5% perpetuity growth rate, what can be said - ✔✔the
exit multiple could be considered unrealistic
formula for PV of projection period - ✔✔PV = FV/(1+r)^N
