Q&A Hero

Q: In which of these scenarios is a revolver draw necessary? A. When cash available for optional debt repayment is positive B. When cash available for optional debt repayment is negative C. When cash available on the balance sheet is zero D. When there is an increase in net working capital

Q: Given the following information, calculate the cash available for optional debt repayment. Details: Cash flow from investing activities: $50.0 Cash flow from operating activities: $125.0 Total mandatory debt repayment: $30.0 Cash from balance sheet: $20.0 A. $65.0 B. $165.0 C. $45 D. $20.0

Q: Given the following information, calculate the cash available for debt repayment when building a post-LBO model. Details: Cash flow from investing activities: $30.0 EBIT: $65 Cash flow from operating activities: $120.0 D&A: $35 A. $100.0 B. $30.0 C. $90.0 D. $150.0

Q: Calculate the interest rate for a revolving credit facility in 2014 given the following information. Details: Pricing spread: 350 bps. A. 7.85% B. 4.35% C. 0.85% D. 3.5%

Q: When building a debt schedule, what are interest rates typically based on for floating-rate debt instruments? A. Federal funds rate B. 3 year treasury yields C. Required rate of return D. LIBOR

Q: In a post-LBO model, where are the debt repayment amounts linked to? A. Investing activities on the cash flow statement B. Financing activities on the cash flow statement C. Income statement D. Long-term debt on the balance sheet

Q: What is needed in order to complete the pro forma income statement from EBIT to net income? A. Balance sheet B. Debt schedule C. CIM D. LIBOR curve

Q: In an LBO, financing fees are a(n): A. Deferred asset B. Asset C. Deferred expense D. Current liability

Q: Calculate the total goodwill for a pro forma balance sheet given the following details. Details: Equity purchase price: $2,000 Book value: $1,700 Existing goodwill: $100 A. $100 B. $300 C. $200 D. $400

Q: Which of the following are sources of funds? I. Term loan II. Repayment of term loan III. Purchase of equity IV. Cash on hand A. I only B. I and IV C. I and II D. All are sources of funds

Q: Calculate implied enterprise value given the following details. Details: Offer price per share: $20.0 Fully diluted shares outstanding: 100 Total debt: $200.0 Cash: $100.0 A. $2,000 B. $1,900 C. $2,100 D. $1,700

Q: The ending cash balance on the cash flow statement is linked to the: A. Retained earnings B. Cash and cash equivalents C. Income statement D. Long-term assets

Q: Under operating activities on a cash flow statement, amortization of financing fees is linked from the: A. CIM B. Balance sheet C. Income statement D. Management case

Q: In a pre-LBO model, net income on the first line of the cash flow statement is initially: A. Inflated B. Understated C. Correct D. Deflated

Q: In a pre-LBO model, what is the new line item financing fees under? A. Long-term liabilities B. Long-term assets C. Short-term liabilities D. Short-term assets

Q: In an LBO model, which scenario is considered the most conservative? A. Management case B. Base case C. Sponsor case D. Downside case

Q: When preparing a pre-LBO model, the historical income statement is completed until what point? A. Net income B. Operating expenses C. Interest expenses D. EBIT

Q: Which exit strategy provides the sponsor with the ability to retain 100% of its existing ownership position in the target? A. Sale to a strategic buyer B. IPO C. Dividend recapitalization D. Private sale

Q: If an LBO target does not repay any debt during the investment horizon, how can the sponsor still realize a return? A. If the target reinvests its cash into the business, the sponsor can realize a return by selling the target at a higher enterprise value B. The sponsor cannot realize a return, as the enterprise value did not increase C. The sponsor cannot realize a return, as the value of the sponsors equity could not increase D. It depends on the sponsors internal rate of return

Q: When performing a returns analysis in an LBO, which method does not include the time value of money? A. IRR B. DCF C. Cash return analysis D. Perpetuity growth method

Q: What is the annual interest rate paid on a debt obligations principal amount outstanding called? A. Covenant B. Coupon C. Call premium D. PIK

Q: What is the classification of a covenant that requires to buyer to maintain a minimum EBITDA? A. Affirmative B. Negative C. Maintenance D. Financial

Q: What is the classification of a covenant that limits the amount of debt the borrower can have outstanding? A. Affirmative B. Negative C. Maintenance D. Financial

Q: What is the classification of a covenant requiring a borrower to maintain assets, collateral, or other securities? A. Affirmative B. Negative C. Maintenance D. Financial

Q: All of the following are primary classifications of covenants EXCEPT: A. Affirmative B. Negative C. Maintenance D. Financial

Q: What can protect investors from having debt with an attractive yield refinanced before maturity? A. Floating interest rate B. Fixed interest rate C. PIK D. Call premium

Q: What kind of loan is needed if the take-out securities deteriorate between the signing and the closing of an LBO? A. Bridge loan B. Second lien term loan C. PIK D. Mezzanine debt

Q: A feature in the high yield market that allows the issuer to pay interest in the form of additional notes is called a: A. Bridge loan B. First lien C. PIK D. Term B loan

Q: An ABL facility is generally secured by a first priority lien on which of the following assets? A. PP&E B. Deferred tax asset C. Inventory D. Goodwill

Q: Which of the following forms of financing tends to be the least flexible? A. Bank debt B. Mezzanine debt C. Equity contribution D. High yield bonds

Q: Which of the following correctly ranks the capital structure hierarchy? A. High yield bonds, mezzanine debt, equity contribution, bank debt B. Equity contribution, mezzanine debt, high yield bonds, bank debt C. Equity contribution, high yield bonds, mezzanine debt, bank debt D. Bank debt, mezzanine debt, high yield bonds, equity contribution

Q: Which of the following LBO financing scenarios will lead to the highest interest expense? A. 80% equity B. 20% debt C. 60% debt D. 20% equity

Q: Which of the following scenarios is likely to generate the highest return? A. An LBO financed with 50% debt B. An LBO financed with 30% equity C. An LBO financed with 80% debt D. An LBO financed with 50% equity

Q: A target was purchased for $1,500.0m with an equity contribution of $500.0m. By year 5 no debt has been repaid and enterprise value has grown by $500.0m. Assuming the sponsor sells the target for its enterprise value, what is the sponsors cash return? A. 2x B. 3x C. 1x D. 5x

Q: A target was purchased for $1,500.0m with an equity contribution of $500.0m, and by year 5 $500.0m of cash flow was used to repay debt. Assuming the sponsor sells the target for the enterprise value, what is the value of the sponsors equity? A. $1,500.0m B. $1,000.0m C. $500.0m D. $2,000.0m

Q: If a target was purchased for $1,500.0m with an equity contribution of $500.0m, what is the enterprise value of the target if it used $500.0m of cash flow to repay debt? A. $1,000.0m B. $500.0m C. $1,500.0m D. $2,000.0m

Q: Calculate the internal rate of return for a $300.0m cash outflow at the end of year 0 and a $716.0m cash inflow at the end of year 5. A. 16% B. 20% C. 18.5% D. 19%

Q: What is the primary metric used by sponsors to gauge the attractiveness of a potential LBO as well as the performance of their existing investments? A. DCF B. IRR C. Precedent transactions analysis D. Comparable companies analysis

Q: What can potentially be reduced or eliminated in the event that economic or operating performance declines? A. Growth capex B. Assets C. Maintenance capex D. PP&E

Q: All of the following are ways to improve operational efficiencies EXCEPT: A. Lower corporate overhead B. Streamline operations C. Increase marketing efforts D. Reduce head count

Q: What is another name for a limited partnership structured as a fixed-life investment vehicle? A. General partnership B. Blind pool C. Passive investment D. SPAC

Q: What is a private equity firm considered in an LBO? A. A financial sponsor B. A strategic investor C. A passive investor D. A limited partner

Q: Investment banks typically compete to provide a financing in an LBO, the legally binding letters are called? A. Commitment papers B. Revolver C. Financing papers D. Both A and C

Q: Which of the following characteristics would represent an attractive LBO candidate? A. Irregular cash flow and substantial assets B. High capex requirements and small asset base C. Predictable cash flow and substantial assets D. Substantial assets and insubstantial cash flow

Q: What is the main source of financing in a leveraged buyout? A. Debt B. Equity C. Assets D. Cash

Q: Which of the following is a true statement about capital expenditures? A. They represent actual cash outflows B. They represent theoretical cash outflows C. They represent intangible assets D. They are expenses

Q: All of the following assets can be amortized EXCEPT: A. Copyrights B. Patents C. Goodwill D. PP&E

Q: If a DCF is constructed on the basis of EBIT or EBITDA, what must be driven as a percentage of sales? A. COGS B. SG&A C. Net working capital D. D&A

Q: When determining a terminal value for a cyclical company, the banker must make sure that: A. Earnings are normalized B. Earnings are at a cyclical high C. Earnings are at a cyclical low D. The perpetuity growth method is used

Q: Which variable generally represents the majority of a DCF valuation? A. CAPM B. Beta C. WAAC D. Terminal value

Q: Calculate the present value of FCF using a year-end discount factor given the following information.A. $180.0mB. $200.0mC. $185.0mmD. $190.0m

Q: Calculate the discount factor for $1.00 received at the end of one year, assuming a 12% discount rate. A. .80 B. .95 C. .87 D. .89

Q: Calculate the terminal value using the EMM method given the following information. A. 8,400.0m B. 8.160.0m C. 8,000.0m D. 8,480.0m

Q: Identify the following formula.A. CAPMB. DCFC. PGMD. EEM

Q: Calculate the unlevered beta given the following information.A. 1.8B. 1.2C. 1D. 1.4

Q: Calculate the CAPM given the following information.A. 12%B. 16%C. 20%D. 8.32%

Q: Calculate the market risk premium given the following information. A. 13% B. 6% C. 7% D. 20%

Q: What is used to calculate the expected return on a companys equity? A. FCF B. CAPM C. DCM D. EEM

Q: What happens to WAAC as the proportion of debt in a capital structure increases? A. It stays the same B. It decreases C. It increases D. It depends

Q: When there is no debt in the capital structure, what is WAAC equal to? A. Cost of debt B. Debt-to-total capitalization ratio C. Equity-to-total capitalization ratio D. Cost of equity

Q: Calculate the ratio of debt-to-total capitalization given the following information. A. 3% B. 2.7% C. 1.5% D. 2%

Q: What is inventory divided by to obtain DIH? A. COGS B. Sales C. Accounts Receivable D. Gross Profit

Q: Calculate the DSO of a company given the following information. A. 0.02 B. 0.06 C. 21.9 D. 7.3

Q: How does a decrease net working capital affect FCF? A. Overstates FCF B. Does not affect FCF C. Understates FCF D. It depends

Q: Which of the following is considered a use of cash? A. Amortization B. Depreciation C. Decrease in net working capital D. Increase in net working capital

Q: Capex is expensed over its useful life through which of the following? A. Depreciation B. Amortization C. EBIAT D. Goodwill

Q: Which expense reduces the life of an intangible asset? A. Depreciation B. Accelerated Depreciation C. Amortization D. Capex

Q: Calculate the companys free cash flow given the following information. A. $250.0mm B. $340.0mm C. $500.0mm D. $300.0mm

Q: In a DCF analysis, the targets projected FCF and terminal value are discounted to the present and summed to calculate the targets: A. Enterprise value B. Market cap C. Equity value D. Current value

Q: In which calculation is the exit multiple method or the perpetuity growth method used? A. Present value B. Terminal value C. WACC D. FCF

Q: In a DCF analysis, what is used to capture the remaining value of the target beyond the projection period? A. Intrinsic value B. Terminal Value C. WACC D. Enterprise Value

Q: When there are limited (or no) pure play peer companies, which valuation method should be used? A. Comparable companies analysis B. Precedent transaction analysis C. Vertical analysis D. Discounted cash flow analysis

Q: A DCF analysis is premised on the principle that the value of a company can be derived from the present value of which of the following? A. Revenues B. Gross profits C. Free cash flow D. Net working capital

Q: In which document can one find recommendation from the targets board of directors on how shareholders should respond to a tender offer? A. 8-K B. Schedule 13E-3 C. 10-Q D. Schedule 14D-9

Q: When performing a precedent transaction analysis, in what scenario would information be found in an S-4 if the target was private in an LBO? A. When non-public financing is used B. When public debt securities are issued C. If the acquisition is over $1,000.0m D. There is never information on a private transaction

Q: In which scenario must the equity value be grossed up to calculate the implied equity value? A. The target is a private company B. The acquirer is a private company C. The acquirer purchases less than 100% of outstanding shares D. The acquirer purchases all outstanding shares

Q: In a floating ratio structure, the number of shares exchanged fluctuates in accordance with which of the following? A. Movement of the acquirers share price B. Movement of the targets share price C. Market movement D. Sector movement

Q: Which of the following is true regarding the number of the acquirers shares exchanged in a fixed exchange ratio structure? A. It remains constant B. It goes up C. It fluctuates D. It goes down

Q: Which form contains relevant data for an LBO in a private transaction involving non-public financing? A. S-4 B. 8-K C. 13E-3 D. None of the above

Q: The use of stock as a meaningful portion of a transaction generally leads to a: A. Higher valuation B. Lower valuation C. Higher multiple D. It depends