Transaction Comps Modeling | Wall
Street Prep: Official Exam Blueprint
Replica
Foundations of Transaction Comps & Precedent Transaction Analysis (10 Questions)
Q1: What is the primary purpose of a precedent transaction analysis in the context of M&A?
A. To determine the current public market valuation of a target company.
B. To establish a valuation range based on the price at which a company's stock is currently
trading.
C. To derive valuation multiples from the prices paid for comparable companies in historical
M&A transactions. [CORRECT]
D. To project a company's future cash flows and discount them back to present value.
Correct Answer: C
Rationale: Correct because the primary purpose is to use historical M&A deal prices to derive
multiples that can be applied to the target company's financial metrics.
Q2: In selecting comparable transactions, which criterion is most critical to ensure relevance?
A. The target companies are in the same geographic region.
B. The transactions were all cash deals.
C. The target companies operate in the same industry and have similar business models.
[CORRECT]
D. The transactions were all hostile takeovers.
Correct Answer: C
Rationale: Correct because similarity in industry and business model ensures the economic
characteristics driving the valuation are comparable.
Q3: Which of the following is a key consideration when evaluating the "timing" of a comparable
transaction?
A. The length of the due diligence period.
B. The prevailing market and economic conditions at the time of the deal. [CORRECT]
C. The time of year the deal was announced.
D. The time it took to secure regulatory approval.
Correct Answer: B
, Rationale: Correct because market conditions, such as interest rates and credit availability,
significantly impact valuation multiples paid in a given period.
Q4: A precedent transaction analysis is most useful when:
A. The target company has no publicly traded peers.
B. The transaction involves a control premium. [CORRECT]
C. The target company is a startup with no historical financials.
D. The market is experiencing high volatility.
Correct Answer: B
Rationale: Correct because precedent transactions inherently reflect the control premium paid
to acquire a company.
Q5: In transaction comps, deal size relevance refers to:
A. The total dollar value of the transaction. [CORRECT]
B. The number of shares outstanding of the target.
C. The size of the investment banking team advising on the deal.
D. The amount of synergy expected from the merger.
Correct Answer: A
Rationale: Correct because the absolute size of the deal (in dollars) ensures the transactions are
comparable in scale.
Q6: What is the difference between a public and private transaction comp?
A. Public transactions involve listed buyers; private transactions involve unlisted buyers.
B. Public transactions are announced publicly; private transactions are only disclosed in
regulatory filings.
C. A public transaction involves a target that is publicly traded; a private transaction involves a
target that is not listed on an exchange. [CORRECT]
D. Public transactions are always larger than private transactions.
Correct Answer: C
Rationale: Correct because the classification is based on the status of the target company.
Q7: Which of the following best describes "control premium"?
A. The discount applied to the share price to account for lack of marketability.
B. The additional amount paid over the market value of a company to acquire a controlling
stake. [CORRECT]
C. The premium paid to investment bankers for advising on a transaction.
D. The difference between the bid and ask price of a stock.
Correct Answer: B
Rationale: Correct because a control premium is the difference between the acquisition price
and the unaffected stock price.
Street Prep: Official Exam Blueprint
Replica
Foundations of Transaction Comps & Precedent Transaction Analysis (10 Questions)
Q1: What is the primary purpose of a precedent transaction analysis in the context of M&A?
A. To determine the current public market valuation of a target company.
B. To establish a valuation range based on the price at which a company's stock is currently
trading.
C. To derive valuation multiples from the prices paid for comparable companies in historical
M&A transactions. [CORRECT]
D. To project a company's future cash flows and discount them back to present value.
Correct Answer: C
Rationale: Correct because the primary purpose is to use historical M&A deal prices to derive
multiples that can be applied to the target company's financial metrics.
Q2: In selecting comparable transactions, which criterion is most critical to ensure relevance?
A. The target companies are in the same geographic region.
B. The transactions were all cash deals.
C. The target companies operate in the same industry and have similar business models.
[CORRECT]
D. The transactions were all hostile takeovers.
Correct Answer: C
Rationale: Correct because similarity in industry and business model ensures the economic
characteristics driving the valuation are comparable.
Q3: Which of the following is a key consideration when evaluating the "timing" of a comparable
transaction?
A. The length of the due diligence period.
B. The prevailing market and economic conditions at the time of the deal. [CORRECT]
C. The time of year the deal was announced.
D. The time it took to secure regulatory approval.
Correct Answer: B
, Rationale: Correct because market conditions, such as interest rates and credit availability,
significantly impact valuation multiples paid in a given period.
Q4: A precedent transaction analysis is most useful when:
A. The target company has no publicly traded peers.
B. The transaction involves a control premium. [CORRECT]
C. The target company is a startup with no historical financials.
D. The market is experiencing high volatility.
Correct Answer: B
Rationale: Correct because precedent transactions inherently reflect the control premium paid
to acquire a company.
Q5: In transaction comps, deal size relevance refers to:
A. The total dollar value of the transaction. [CORRECT]
B. The number of shares outstanding of the target.
C. The size of the investment banking team advising on the deal.
D. The amount of synergy expected from the merger.
Correct Answer: A
Rationale: Correct because the absolute size of the deal (in dollars) ensures the transactions are
comparable in scale.
Q6: What is the difference between a public and private transaction comp?
A. Public transactions involve listed buyers; private transactions involve unlisted buyers.
B. Public transactions are announced publicly; private transactions are only disclosed in
regulatory filings.
C. A public transaction involves a target that is publicly traded; a private transaction involves a
target that is not listed on an exchange. [CORRECT]
D. Public transactions are always larger than private transactions.
Correct Answer: C
Rationale: Correct because the classification is based on the status of the target company.
Q7: Which of the following best describes "control premium"?
A. The discount applied to the share price to account for lack of marketability.
B. The additional amount paid over the market value of a company to acquire a controlling
stake. [CORRECT]
C. The premium paid to investment bankers for advising on a transaction.
D. The difference between the bid and ask price of a stock.
Correct Answer: B
Rationale: Correct because a control premium is the difference between the acquisition price
and the unaffected stock price.
