Trading Comps Modeling Exam Wall Street Prep

2025TradingCompsModeling
ExamWallStreetPrep/Wall
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StreetPrepPremiumExam
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TransactionCompsModeling
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WallStreetPrepExamGRADEDA+
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theterminalvalueofabusinessthatgrowsindefinitelyiscalculatedas
jfollows-✔✔✔ANSWER-cashflowfromperiod"t+1"dividedby
j(discountrate-growthrate)


thetwo-stageDCFmodelis:-✔✔✔ANSWER-wherestage1isan
explicitprojectionoffreecashflows(generallyfor5-10years),and
j d d

,stage2isalump-sumestimateofthecashflowsbeyondthe
d




jexplicitforecastperiod


disadvantagesofaDCFdonotinclude-✔✔✔ANSWER-freecash
flowsoverthefirst5-10yearperiodrepresentasignificantportionof
j d d d d




valueandarehighlysensitivetovaluationassumptions
j




thetypicalsell-sideprocess-✔✔✔ANSWER-shorterthanthebuy
jside,buyersecuresfinancing,anddoesn'tinvolveid'ingpotential d




jissuestoaddresssuchasownershipandunusualequitystructures,
jliabilities,etc.


Whileequitycontributionwentaslowasthesingledigitsinthe
1980's,thecurrentsplitbetweenequityanddebtinanLBOdealisbest
j d




characterizedas:-✔✔✔ANSWER-Equity-35%;Debt65%
j




What is generally not considered to be a pre-tax non-recurring
j j j j j j j j j




(unusual or infrequent) item? - ✔✔✔ANSWER-Extraordinary
j j j j j j




gains/losses
j




whatisfalseaboutdepreciationandamortization-✔✔✔ANSWER-DCA
maybeclassifiedwithininterestexpense
j




CompanyX'scurrentassetsincreasedby$40millionfrom2007-2008
whilethecompaniescurrentliabilitiesincreasedby$25
j

, millionoverthesameperiod.thecashimpactofthechangein
workingcapitalwas-✔✔✔ANSWER-adecreaseof15million
j




thefinalcomponentofanearningsprojectionmodeliscalculating d d




jinterestexpense.thecalculationmaycreateacircularreference d




jbecause-✔✔✔ANSWER-interestexpenseaffectsnetincome,which
jaffectsFCF,whichaffectstheamountofdebtacompanypaysdown, d




jwhich,inturnaffectstheinterestexpense,hencethecircular
jreference


a10-qfinancialfilinghasallofthefollowingcharacteristicsexcept
d d d




-
✔✔✔ANSWER-issuedfourtimesayear.


DepreciationExpensefoundintheSGCAlineoftheincomestatement d




jforamanufacturingfirmwouldmostlikelybeattributabletowhichof
thefollowing-✔✔✔ANSWER-computersusedbythe accounting
j j




department
j




Ifacompanyhasprojectedrevenuesof$10billion,agrossprofitmargin
d




of65%,andprojectedSGCAexpensesof$2billion,whatisthe
j d d




company's operating(EBIT) margin? -✔✔✔ANSWER-45%
j j j j




Acompanyhasthefollowinginformation,1.2014revenuesof
d




$5 billion,2013 Accounts receivable of $400 million, 2014
j j j j j j j




accounts receivable of $600 million, what are the days sales
j j j j j j j j j j




outstanding-
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✔✔✔ANSWER-36.5