WALL STREET PREP PREMIUM EXAM 2024/2025 COMPLETE
QUESTIONS WITH CORRECT ANSWERS | RATED A+
1. When determining value for a company based on transaction rather than trading comps, one
of the key differences that will affect the value is - Answer>>> premium paid for control of the
business
2. Garth's Micro Brewery, whose shares are currently trading at $40 per share, is considering
acquiring Wayne's
Beer Bottling Co. You have compiled a group of comparable transactions within the beer
bottling space and have
calculated that since 2014, acquisitions similar (or comparable!) to the one Garth's is currently
considering have
had transaction values (offer value of target plus any target debt, net of cash) that are, on
average, 8.0x target's
EBITDA.
• Wayne's shares currently trade at $34 per share
• Wayne's has 50 million diluted shares outstanding
• Wayne's LTM EBITDA was $250 million
• Wayne's Net Debt was $200 million
What is the offer value per share and the offer premium? - Answer>>> $36.00 per share; 5.9%
3. You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final
projected year. Estimate the present value of the projected free cash flows through 2020,
discounted at the stated WACC. Assume all cash flows are generated at the end of the year (i.e.,
no mid-year adjustment): - Answer>>> 837 million
4. On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
outstanding. The
company has net debt of $300 million. After building an earnings model for Company X, you
have projected free
cash flow for each year through 2014 as follows:
, Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
Calculate Company X's implied Enterprise Value by using the discounted cash flow method: -
Answer>>> 2951.2 million
5. On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
outstanding. The
company has net debt of $300 million. After building an earnings model for Company X, you
have projected free
cash flow for each year through 2014 as follows:
Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
According to the discounted cash flow valuation method, Company X shares are: - Answer>>>
.13 per share overvalued
6. the formula for discounting any specific period cash flow in period "t"is: - Answer>>> cash
flow from period "t" divided by (1+discount rate raised exponentially to "t"
7. the terminal value of a business that grows indefinitely is calculated as follows - Answer>>>
cash flow from period "t+1" divided by (discount rate-growth rate)
8. the two-stage DCF model is: - Answer>>> where stage 1 is an explicit projection of free cash
flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows beyond
the explicit forecast period
9. disadvantages of a DCF do not include - Answer>>> free cash flows over the first 5-10 year
period represent a significant portion of value and are highly sensitive to valuation assumptions
QUESTIONS WITH CORRECT ANSWERS | RATED A+
1. When determining value for a company based on transaction rather than trading comps, one
of the key differences that will affect the value is - Answer>>> premium paid for control of the
business
2. Garth's Micro Brewery, whose shares are currently trading at $40 per share, is considering
acquiring Wayne's
Beer Bottling Co. You have compiled a group of comparable transactions within the beer
bottling space and have
calculated that since 2014, acquisitions similar (or comparable!) to the one Garth's is currently
considering have
had transaction values (offer value of target plus any target debt, net of cash) that are, on
average, 8.0x target's
EBITDA.
• Wayne's shares currently trade at $34 per share
• Wayne's has 50 million diluted shares outstanding
• Wayne's LTM EBITDA was $250 million
• Wayne's Net Debt was $200 million
What is the offer value per share and the offer premium? - Answer>>> $36.00 per share; 5.9%
3. You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final
projected year. Estimate the present value of the projected free cash flows through 2020,
discounted at the stated WACC. Assume all cash flows are generated at the end of the year (i.e.,
no mid-year adjustment): - Answer>>> 837 million
4. On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
outstanding. The
company has net debt of $300 million. After building an earnings model for Company X, you
have projected free
cash flow for each year through 2014 as follows:
, Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
Calculate Company X's implied Enterprise Value by using the discounted cash flow method: -
Answer>>> 2951.2 million
5. On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
outstanding. The
company has net debt of $300 million. After building an earnings model for Company X, you
have projected free
cash flow for each year through 2014 as follows:
Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
According to the discounted cash flow valuation method, Company X shares are: - Answer>>>
.13 per share overvalued
6. the formula for discounting any specific period cash flow in period "t"is: - Answer>>> cash
flow from period "t" divided by (1+discount rate raised exponentially to "t"
7. the terminal value of a business that grows indefinitely is calculated as follows - Answer>>>
cash flow from period "t+1" divided by (discount rate-growth rate)
8. the two-stage DCF model is: - Answer>>> where stage 1 is an explicit projection of free cash
flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows beyond
the explicit forecast period
9. disadvantages of a DCF do not include - Answer>>> free cash flows over the first 5-10 year
period represent a significant portion of value and are highly sensitive to valuation assumptions
