Q&A Hero

Q: What situation would lead to a higher purchase price for a company? A. Merger of equals B. Targeted auction C. Hostile situation D. Private equity deal

Q: Which kind of buyer generally pays the most for an acquisition? A. Financial buyer B. Strategic buyer C. Private equity D. Financial sponsor

Q: Calculate the percentage of premium paid given the following details. Details: AcquirerCo officially announced today that it has agreed to buy TargetCo for $35 a share. TargetCo shares closed yesterday at $20.00. A. 75% B. 175% C. 42% D. 35%

Q: All of the following are weaknesses of a precedent transactions analysis EXCEPT: A. Multiples may be skewed, depending on the economic environment B. Precedent transactions by definition have occurred in the past, and may not be reflective of the current environment C. A precedent transactions analysis makes too many assumptions about future performance D. Information may be insufficient to determine transaction multiples for many comparable acquisitions.

Q: Given the following information, calculate the EBITDA multiple that includes synergies. Details: Enterprise Value: $3,500.0 EBIT: $425.0 Depreciation and Amortization: $25.0 COGS: $500.0 Synergies: $50.0 A. 3.5x B. 8x C. 14x D. 7x

Q: Calculate the percentage of premium paid given the following details: Details: Although rumors of the transaction leaked out yesterday, AcquirerCo officially announced today that it has agreed to buy TargetCo for $25.00 a share. TargetCo shares closed higher yesterday at $20.00. A. 25% B. 20% C. 15% D. Not enough information

Q: Calculate the offer price per share given the following details: Transaction Details: AcquirerCo agreed to buy TargetCo with a mix of cash and AcquirerCo stock. TargetCo stockholders will receive $5.00 in cash and one share of AcquirerCo common stock for every two shares of TargetCo stock. AcquirerCos share price closed at $30.00 a day prior to the announcement. A. $15.00 B. $35.00 C. $25.00 D. $20.00

Q: Which structure generally gives greater certainty to the targets shareholders in terms of value received? A. Floating exchange ratio B. Fixed exchange ratio C. They both are the same D. It depends on the terms

Q: Determine the type of exchange ratio in the following Stock-for-Stock transaction. Transaction Details: AcquirerCo will acquire TargetCo for stock. TargetCo stockholders will receive $40.00 of AcquirerCos common stock for each share of TargetCo common stock they hold. A. Fixed exchange ratio B. Secure exchange ratio C. Floating exchange ratio D. Linear exchange ratio

Q: Calculate the equity value in a fixed exchange ratio structure given the following information. Transaction Details: TargetCos shareholders will receive one share of AcquirerCos common stock for every four shares of TargetCos common stock. AcquirerCos share price prior to the announcement was $20.00. TargetCo has 25 million shares outstanding. A. $125.0mm B. $100.0mm C. $80.0mm D. $50.0mm

Q: Calculate the fixed exchange ratio based on the following transaction details. Transaction Details: AcquirerCo agrees to purchase TargetCo in an all-stock transaction valued at $2.0 billion. TargetCos shareholders will receive one share of AcquirerCos stock for every four shares of TargetCo stock they own. A. 4 B. .25 C. 1.00 D. .5

Q: A ratio that defines how many shares of the acquirers stock are exchanged for each share of the targets stock is referred to as a: A. Fixed exchange ratio B. Secure exchange ratio C. Floating exchange ratio D. Stock-for-stock ratio

Q: Which form of consideration typically triggers a taxable event? A. All-cash B. Stock-for-Stock C. Cash/stock mix D. None

Q: Which of the following choices is NOT a primary type of purchase consideration for a targets equity? A. All-cash B. Stock-for-Stock C. Cash/stock mix D. All-debt

Q: Calculate the offer price per share for a company in an all-cash transaction given the following information. Transaction Details: Cash offer price: $300.00mm Shares outstanding: 5.00mm Current share price $30.00 A. $60.00 B. $10.00 C. $6.00 D. $30.00

Q: How is the equity value calculated for an M&A transaction when the target company is private? A. Share price multiplied by shares outstanding B. Acquirers price per share multiplied by shares outstanding C. Enterprise value less assumed/refinanced net debt D. There is no equity value for a private company

Q: Calculate the equity value for a public target in a precedent transactions analysis given the following information. Details: Share price: $20.00 Acquirers offer price per share: $40.00 Fully diluted shares outstanding: 100.00mm A. $200.00mm B. $400.00mm C. $150.00mm D. $250.00mm

Q: When may a Schedule 13E-3 be issued? A. In a tender offer B. In a one-step merger transaction C. When a public acquirer issues shares as part of the purchase consideration of a public target D. In a leveraged buyout of a public company

Q: What situation would generally result in a lower purchase price of a company? A. The seller is in need of cash and is selling a non-core business B. The target company is shopped to prospective buyers through an auction C. The target company is seeking alternatives to a hostile bid D. The buyer seeks to create synergies

Q: What is the correct order for a precedent transaction analysis? E. Select the universe of comparable acquisitions F. Benchmark the comparable acquisitions G. Locate the necessary deal-related and financial information H. Spread key statistics, ratios, and transaction multiples I. Determine valuation A. E, H, F, G, I B. E, G, H, F, I C. I, H, G, E, F D. F, G, H, I, E

Q: What is NOT a reason why transaction comps generally provide a higher multiple range than trading comps? A. Buyers pay control premiums B. Buyers often have the opportunity to realize synergies C. Buyers receive the right to control decisions D. Transaction comps are more accurate than trading comps

Q: Calculate COGS given the following information. Sales: $800.0m SG&A: $250.0m EBITDA: $300.0m D&A: $50.0m A. $250.0m B. $200.0m C. $500.0m D. $300.0m

Q: Given the following information, calculate a companys EBITDA margin. Operating income: $250.0m Sales: $800.0m D&A: $50.0m Gross profit: $500.0m A. 40.0% B. 37.5% C. 31.25% D. 68.75%

Q: What happens to enterprise value if a company raises $100.0m debt and holds it on its balance sheet as cash? A. EV remains the same B. EV increases by $100.0m C. EV decreases by $100.0m D. EV decreases by $200.0m

Q: Which of the following is both a pro and a con of performing a comparable companies analysis? A. It is quick to perform B. It is current data C. It is relative to other companies D. It is market based

Q: For what company would a valuation metric like EV / Sales be helpful? A. A company with high gross margins B. A company with no earnings C. A company with low gross margins D. A company with no debt

Q: What is a common multiple to use in a comparable companies analysis for a retail company? A. EV / Subscribers B. EV / Reserves C. EV / Square footage D. EV / Production

Q: Which of the following is NOT included in calculating a companys capitalization ratio? A. Debt B. Preferred stock C. Equity D. EBITDA

Q: What is EBITDA a proxy for? A. Sales B. Growth C. Cash flow D. Debt

Q: Calculate the EBITDA margin given the following information. EBITDA: $200.0m COGS: $200.0m Sales: $1,000.0m Net income: $150.0m A. 20% B. 15% C. 40% D. 25%

Q: What is normalized net income given the following information? A. $505 B. $550 C. $385 D. $275

Q: Which of the following is likely to be a non-recurring item on an income statement? A. SG&A B. Interest expense C. Depreciation D. Goodwill impairment

Q: What is the difference between 2011 YTD revenues and LTM revenues? Revenues: Q1 2011: $200.0m Q2 2011: $150.0m Q3 2011: $220.0m Q4 2011: $175.0m Q1 2012: $250.0m Q2 2012: $175.0m A. $75.0m B. $50.0m C. $175.0m D. $100.0m

Q: Based on Moodys rating scale, what grade is Baa1 considered? A. High quality B. Highly speculative C. Medium grade D. Extremely speculative

Q: Calculate the debt-to-EBITDA ratio given the following information. EBIT: $100.0m D&A: $150.0m Cash: $50.0m Debt: $75.0m A. 25% B. 30% C. 50% D. 37.5%

Q: Calculate the compounded annual growth rate (CAGR) if revenues grew from $50.0m in 2005 to $350.0m in 2012. A. 32% B. 24% C. 55% D. 18%

Q: Given the following information, calculate the dividend yield. Quarterly dividend: $0.50 per share Current share price: $20.00 A. 10% B. 2.5% C. 5% D. 1%

Q: Which calculation measures the return generated by all capital provided to a company? A. ROE B. ROA C. ROIC D. ROI

Q: All of the following are reasons why EBITDA is an important metric when performing a comparable companies analysis EXCEPT: I. It represents a more accurate look at a companys operating cash flow II. It is free from differences resulting from capital structure III. It represents the profit after all of a companys expenses have been netted out IV. It is free from differences in tax expenses A. It represents a more accurate look at a companys operating cash flow B. It is free from differences resulting from capital structure C. It represents the profit after all of a companys expenses have been netted out D. It is free from differences in tax expenses

Q: Given the following information, calculate the gross profit margin. Revenue: $200.0mm COGS: $100.0mm Operating Expenses: $50.0mm A. 40% B. 50% C. 25% D. 10%

Q: Given the following information, what, by itself, would cause the enterprise value to equal $1,300.0mm? Equity Value: $1,400mm Cash: $200mm Total Debt: $300mm A. A $100mm decrease in debt B. A $100mm increase in cash C. A $200mm increase in debt D. A $200mm increase in cash

Q: What happens to the enterprise value (EV) if a company issues equity and uses the proceeds to repay debt? A. The EV goes up B. The EV remains the same C. The EV goes down D. It depends

Q: What is the equity value of the company given the following information? Current share price: $40.00 Basic shares outstanding: 400.0mm 50.0mm options outstanding with an exercise price of $20.00 5.0mm warrants with an exercise price of $45.00 A. $1,600.0mm B. $1,500.0mm C. $1,700.0mm D. $1,625.0mm

Q: How should one adjust net income when using the If-Converted method for a comparable companies analysis? A. Adjust net income downward B. Adjust net income upward C. Make no adjustment to net income D. It depends

Q: Calculate the share dilution using the TSM method given the following information: 100.0mm basic shares outstanding Current share price of $10.00 10.0mm options outstanding with an exercise price of $20.00 A. 110.0mm B. 150.0mm C. 100.0mm D. 220.0mm

Q: A companys capital expenditures can be found on all of the following forms EXCEPT: A. 10-K B. 8-K C. Proxy Statement D. 10-Q

Q: An 8-K or current report may be helpful for a comparable companies analysis as it contains which of the following? A. Management discussion and analysis B. Pro forma adjustments C. Material corporate events or changes D. A comprehensive company overview

Q: Which financial metric can help indicate a companys size? A. ROIC B. EV C. DOL D. FCF Yield

Q: All of the following are reasons why comparable companies analysis should be used in conjunction with other valuation methodologies EXCEPT: I. Markets may be skewed due to investor sentiment II. No two companies are the same III. Valuation methods vary by sector IV. Intrinsic valuation may be needed A. Markets may be skewed due to investor sentiment B. No two companies are the same C. Valuation methods may vary by sector D. Intrinsic valuation may be needed

Q: Eurobonds are subject to fewer regulations than U.S. issued bonds.

Q: Foreign branches of U.S. banks are subject to U.S. reserve requirements.

Q: Before the Great Depression, many U.S. banks operated as universal banks.

Q: Foreign banks generally pay higher deposit rates than U.S. banks.

Q: Foreign banks generally operate with higher capital ratios than U.S. banks.

Q: A forward market exchange in foreign currencies is an agreement to exchange: a. currencies in the future at an unspecified time at an exchange rate determined at the time the contract is agreed to. b. currencies in the future at a specified time at an unknown exchange rate. c. currencies in the future at an unspecified time at an unknown exchange rate. d. a product for a foreign currency in the future at a specified time. e. currencies in the future at a specified time at an exchange rate determined at the time the contract is signed.

Q: Covered interest rate arbitrage is possible when: a. both currencies are appreciating. b. the actual inflation rates are identical in both countries. c. the difference in the interest rates in two countries exactly equals the spot-to-forward exchange rate differential. d. the difference in interest rates in two countries is out of line with the spot-to-forward exchange rate differential. e. none of the above

Q: If the spot rate is 1.67CAN$/US$ and the 1-month forward rate is 1.70CAN$/US$: a. the Canadian dollar is selling at a premium. b. the Canadian dollar is selling at a discount. c. the U.S. dollar is selling at a discount. d. the U.S. dollar is selling at par. e. none of the above

Q: A London based firm has a subsidiary located in New York. The subsidiary has $1,000 in assets, $750 in liabilities and $250 in equity. The current spot rate is $1.60/£.If the spot rate changes to $1.50/£, what will be the firm's gain or loss?a. $10.42 gainb. £10.42 gainc. $10.42 lossd. £10.42 losse. cannot be determined

Q: A London based firm has a subsidiary located in New York. The subsidiary has $1,000 in assets, $750 in liabilities and $250 in equity. The current spot rate is $1.60/£.What is the U.S. firm's net exposure?a. $250b. £250c. £1,000d. $1,200e. $1,600

Q: A bank's net balance sheet exposure to changes in the value of Euros is measured as:a. the amount of assets denominated in U.S. dollars minus the amount of liabilities denominated in Euros.b. the amount of assets denominated in Euros minus the amount of liabilities denominated in U.S. dollars.c. the amount of liabilities denominated in Euros minus the amount of liabilities denominated in U.S. dollars.d. the amount of assets denominated in Euros minus the amount of assets denominated in U.S. dollars.e. the amount of assets denominated in Euros minus the amount of liabilities denominated in Euros.

Q: Non-performing international loans do not completely reflect potential losses because: a. foreign governments have never defaulted on their debts. b. banks often loan borrowers funds to make payments on existing loans. c. U.S. banks can easily recover the funds in foreign courts. d. the U.S. government has strongly discouraged U.S. banks from making international loans. e. all of the above

Q: The risk that a foreign government will suspend debt service payments is known as: a. LC risk. b. foreign exchange risk. c. euro risk. d. sovereign risk. e. country risk.

Q: Put the following steps of the creation of a banker's acceptance in order. I. Shipping documents delivered II. Letter of credit is issued III. Bankers' acceptance presented at maturity IV. Goods are shipped a. I, IV, II, III b. II, IV, III, I c. II, IV, I, III d. I, IV, III, II e. I, II, III, IV

Q: International loans originate from: a. offices of foreign subsidiaries. b. Edge Act corporations. c. international departments of domestic banks. d. all of the above e. a. and c. only

Q: A time draft for payment at a future date, often used in international trade is known as: a. a reverse repurchase agreement. b. a repurchase agreement. c. a line of credit. d. a letter of credit. e. a bankers acceptance.

Q: The default risk associated with loans made to borrowers outside a bank's home country is called: a. foreign exchange risk. b. sovereign risk. c. euro risk. d. country risk. e. LC risk.

Q: Eurodollar deposits: a. are very different from domestic CDs from the depositor's perspective. b. have no maturity. c. pay interest rates slightly above CDs issued by U.S. banks. d. are subject to reserve requirements established by the Fed. e. are generally small in nature, with a maximum denomination of $10,000.

Q: The most dominant type of Eurocurrency deposits are: a. Euroyens. b. Eurodollars. c. Eurosterlings. d. Eurofrancs. e. Euromarks.

Q: Which of the following is an example of a Eurocurrency? a. A branch of a Canadian bank located in Paris accepts a deposit in U.S. dollars. b. A branch of a U.S. bank located in Tokyo accepts a deposit in Japanese yen. c. A branch of a U.S. bank located in New York accepts a deposit in U.S. dollars. d. A branch of a London bank located in Paris accepts a deposit in Euros. e. A branch of a Swiss bank located in Mexico City accepts a deposit in Mexican pesos.

Q: International banking facilities (IBFs): a. cannot offer transaction accounts to non-bank customers. b. must hold reserves with the Federal Reserve against deposits. c. do not have to pay FDIC insurance premiums on Eurodollar deposits. d. all of the above e. a. and c. only

Q: Which of the following is not true regarding Edge Act banks? a. Edge Act banks may be owned by U.S. banks. b. Edge Act banks may be owned by foreign banks. c. Edge Act banks may be owned by bank holding companies. d. Edge Act banks may be located outside the U.S. e. Edge Act banks may be located in the U.S.

Q: The first type of international office that a bank forms outside its home country that is exploratory in nature is known as: a. an Edge Act bank. b. a head office. c. a representative office. d. an agreement corporation. e. a foreign branch.

Q: Historically, what has prevented universal banks from operating in the United States? a. The Universal Bank Prohibition Act b. The Glass-Stegall Act c. U.S. banks have no desire to become universal banks. d. Universal banks have less risk diversification capabilities than traditional U.S. based banks. e. a. and c. only

Q: A universal bank can engage in: a. making commercial loans. b. making consumer loans. c. selling insurance. d. all of the above e. a. and b. only

Q: The European Community is currently made up of how many member countries? a. 7 b. 10 c. 17 d. 20 e. 27

Q: The Euro is not usable in wholesale financial transactions in: a. France. b. Germany. c. Spain. d. the United Kingdom. e. Austria.

Q: Which of the following is not a member of the European Community (EC)? a. France b. Germany c. Australia d. Spain e. United Kingdom

Q: The largest financial company in the United States is: a. J.P. Morgan Chase & Co. b. Citigroup Inc. c. Bank of America Corp. d. Wells Fargo & Co. e. Wachovia Corp.

Q: The world's largest financial company (as of January 2008) is: a. ING Group b. Fortis c. Citigroup d. HSBC Holdings e. Bank of America

Q: Riding the yield curve:a. is risk-free.b. generally involves buying securities with a longer maturity than the intended holding period.c. can only be accomplished with stripped Treasury securities.d. all of the abovee. a. and c. only