WALL STREET PREP PREMIUM EXAM QUESTIONS
AND CORRECT ANSWERS | ALREADY GRADED A+ |
VERIFIED ANSWERS | LATEST VERSION
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
Use the following information to answer the question below:• Acquirer
purchases 100% of target by issuing $100 million in new debt to purchase
target shares, carrying an interest rate of 10%
• Excess cash is used to help pay for the acquisition
• Acquirer expects to be able to close down several of the target company's
old manufacturing facilities and save an estimated $2 million in the first
year
• Target PP&E is written up by $25 million to fair market value
• Investment bankers, accountants, and consultants on the deal earned $30
million in fees
Which of the following adjustments would be made to the pro forma income
statement? ------CORRECT ANSWER---------------Advisory fee expense of
$30 million
Depreciation expense increase due to PP&E write-up
Pre-tax synergies of $2 million
Use the following information to answer the question below:
• Acquisition takes place on July 1, 2013
• Acquirer FYE - June 30
• Target FYE - December 31
• Acquirer expected EPS for FYE June 2014 is $2.40
AND CORRECT ANSWERS | ALREADY GRADED A+ |
VERIFIED ANSWERS | LATEST VERSION
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
Use the following information to answer the question below:• Acquirer
purchases 100% of target by issuing $100 million in new debt to purchase
target shares, carrying an interest rate of 10%
• Excess cash is used to help pay for the acquisition
• Acquirer expects to be able to close down several of the target company's
old manufacturing facilities and save an estimated $2 million in the first
year
• Target PP&E is written up by $25 million to fair market value
• Investment bankers, accountants, and consultants on the deal earned $30
million in fees
Which of the following adjustments would be made to the pro forma income
statement? ------CORRECT ANSWER---------------Advisory fee expense of
$30 million
Depreciation expense increase due to PP&E write-up
Pre-tax synergies of $2 million
Use the following information to answer the question below:
• Acquisition takes place on July 1, 2013
• Acquirer FYE - June 30
• Target FYE - December 31
• Acquirer expected EPS for FYE June 2014 is $2.40
