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M&I 400 Valuation Basic Questions and Answers Rank the 3 valuation methodologies from highest to lowest expected value. Precedent Transaction will usually produce a higher valuation than Comps because of the Control Premium associated with acquisitions. DCF has most variable value(usually the highest, but dependent on assumptions) When would you not use a DCF in a Valuation? A DCF should not be used for companies with unsteady/unstable cash flow(like tech or bio-tech firms) or when deb...

Valuation Interview Questions and Answers What are the 3 major valuation methodologies? Public Company Comparables (Public Comps), Precedent Transactions and the Discounted Cash Flow Analysis. Public Comps and Precedent Transactions are examples of relative valuation (based on market values) while the DCF is intrinsic valuation (based on cash flows.) Can you walk me through how you use Public Comps and Precedent Transactions? First you select the companies and transactions based on cri...

Financial Accounting Module 7 What are retained earnings, and how do you calculate them? Retained earnings is an owners' equity account that reflects the earnings that have been retained in the business to finance growth or future operations. Retained Earnings=Net Income +retained earnings of previous year - dividends to be paid What is the Free Cash Flow, and how do you calculate it? Free Cash Flow is an indication of how much actual cash is generated and available to be paid ou...

420 Forecasting + Valuation Practice Problems Questions and Answers Which type of financial statement analysis is most commonly used to create a baseline estimate for a financial forecast? Common-size analysis Damon estimates his beginning cash balance for June to be $10,000, with cash inflows of $4,000 and cash outflows of $6,000 for the month. Which of the following is true? Damon has a cash deficit of $2,000 that reduces his beginning cash balance. Debtors create projections ...

Investment Banking Valuation, Equity Value, and Enterprise Value Questions and Answers What are 4 industries where DCFs are not relevant? Commercial Banks Insurance Firms (Some) Oil & Gas Companies Real Estate Investment Trusts (REITs). What 4 factors do you use to pick comparable public companies? Example of a comps set title? Acronym: GIFT! - Geography (US? China? Europe? South America?). - Industry (Diversified Consumer? Food and Beverages specifically?). - Financials (R...

Valuation Questions & Answers – Advanced Questions and Answers Things to Keep in Mind These questions cover 3 different topics: 1. More advanced valuation methodologies. 2. Valuation nuances such as calendarization, non- recurring charges, and where to find information on deals and companies. 3. Industry-specific valuation and special cases, such as private companies, IPOs, and more. There are not that many truly "Advanced" interview questions on Valuation because most of the d...

M3 Financial Valuation Methods Questions and Answers Coldwell is using a constant growth dividend discount model to forecast the value of a share of common stock. Inherent in Coldwell's assumptions is the idea that: A. Stock price will grow at the same amount as the dividend. B. Dividends will grow at a rate faster than the presumed discount rate. C. Compounding growth is linear. D. Stock price will grow at the same rate as the dividend. D An underlying assumption of the constant gro...

Financial Statement Analysis and Valuation Midterm Questions and Answers F/S Analysis and Valuation 4-step Process 1. Understanding the business environment and Acct. Information 2. Adjusting and assessing Financial information and accounting info. 3. Forecasting financial information 4. Using information for valuation Demand for Financial Accounting Information 1. Managers and Employees (internal users) 2. Investment Analysts 3. Creditors and Suppliers 4. Stockholders and (board...

Valuation Methods Questions and Answers Public Comps Relative Valuation Method; Compare multiples to companies of a similar industry, finance, and geography Precedent Transactions Relative Valuation; Compare multiples at the time of purchase to companies of similar industry, finance, geography, and TIME. ALways higher b/c companies purchased at a higher price DCF Project FCF, discount to present value, sum FCF, add to discounted TV= Enterprise Value LBO Determine how mu...

Ch. 1 Introduction to Valuation Questions and Answers Perceptions of Value... ...have to be baked up by reality, which implies that the price that is paid for any asset should reflect the cash flows it is expected to generate. Myth 1: Since valuation models are quantitative, valuation is objective. The models used may be quantitative, but the inputs leave plenty of room for subjective judgments. 2 ways to reduce bias: 1) Avoid taking strong public positions on the value of a fi...

Valuation Questions & Answers How are the three main financial statements connected? -net income flows from the is into cash flow from operations on the cf statement -net income minus dividends is added to retained earnings from the prior periods balance sheet to come up with retained earning on the current periods balance sheet -beginning cash on the cf statement is cash on the current periods balance sheet If you could use only one financial statement to evaluate the financial state...

Property Valuation and Financial Analysis Questions and Answers ln the cost approach to appraisal, the phrase "reproduction cost" differs from "replacement cost." "Reproduction cost" measures the: present cost to build an exact replica of the property. Which of the following is not a part of the cost approach appraisal method? Capitalization. When a residence has a physical age of 20 years, but the appraiser notes the building has the appearance of being only 1...

Chapter 6 Financial Information Analysis & Valuation Questions and Answers Which of the following estimates are not always required when calculating depreciation expense? Select all that apply. Salvage value Hasten Corporation has the following metrics for the year. Days sales outstanding: 58.9 Days payables outstanding: 58.3 Days inventory outstanding: 28.8 The cash conversion cycle for the year is: 29.4 T or F In general, in a period of falling prices, LIFO produces hi...

Chapter 1 - Introduction to valuation Questions and Answers What is the fair market value - the standard definition? The fair market value is the cash equivalent value at which a willing and unrelated buyer would agree to buy and a willing and unrelated seller would agree would agree to sell the company, when neither party is compelled to act, and when both parties have reasonable knowledge of the relevant available information What are the valuation context characteristics? 1. Arms le...

Financial Statement Analysis and Valuation MC Questions and Answers Bally Corporation purchases an investment in Monte Carlo, Inc. at a purchase price of $7 million cash, representing 40% of the book value of Monte Carlo, Inc. During the year, Monte Carlo reports net income of $1,200,000 and pays $295,000 of cash dividends. At the end of the year, the market value of Bally's investment is $8.5 million. What is the year-end balance of the equity investment in Monte Carlo? The year-end balanc...

Valuation Financial Statements, ratio analysis, forecasting Questions and Answers Accounting measures past, not cash flows, not worth, now accurate, book value book value unlikely to reflect what assets could be sold for now and many assets that do not appear on balance sheet but positively impact future cash flows contribute to firm value market value to calculate current worth and if current operations add value than it will be greater than book value valuation timing...

Inventory Management, Valuation, and Financial Reporting Principles Questions and Answers Movement of Inventory Q For the year ended 31 October 20X3 a company carried out a physical count of inventory on 4 November 20X3, leading to an inventory cost at this date of £483,700. The following transactions took place between 1 November 20X3 and 4 November 20X3: (1)Goods costing £38,400 were received from suppliers. (2) Goods that had cost £14,800 were sold for £20,000. (3)A customer r...

Valuation Questions and Answers. liquidation valuation valuing a company's assets, assuming they are sold off and then subtracting liabilities to determine how much capital, if any, equity investors receive replacement value valuing a company based on the costs of replacing its assets LBO analysis Valuing a company by assuming the acquisition of the company via a leveraged buyout, which uses a significant amount of borrowed funds to fund the purchase, and assuming a required...

Quiz 3 (Financial ratios - Valuation) Questions and Answers Define Activity Ratios these ratios measure how efficiently a company operates. How well does the company use its resources to generate sales? The Activity Ratios are 1. Inventory turnover 2. A/R turnover 3. A/P turnover 4. Working Capital turnover 5. Fixed asset turnover 6. Total asset turnover 7. Days Sales Outstanding (DSO) 8. Days Payable Outstanding (DPO) There are many, many more. Some Activity Ratio Formu...

Financial Modeling & Valuation Analyst Questions and Answers Financial Modeling The process of creating a mathematical representation of a company's financial situation and performance. Valuation The process of determining the intrinsic value of an asset, company, or investment DCF (discounted cash flow) A valuation method that estimates the value of an investment based on its projected future cash flows. Sensitivity Analysis Evaluating the impact of changes in assum...