Archive for November 2016

For a buy-side banker advising its client, all of the following changes to contractual items might make its client's offer more appealing to the target EXCEPT

For a buy-side banker advising its client, all of the following changes to contractual items might make its client's offer more appealing to the target EXCEPT




A) Decreasing break-up fee
B) Broadening the Material Adverse Effect (MAE) provision in the Definitive Agreement
C) Loosening target covenants
D) Decreasing indemnification rights










Answer: B

In preparing marketing materials for an M&A sale process, it is common practice for all of the following individuals to communicate freely and collaborate on the final product EXCEPT

In preparing marketing materials for an M&A sale process, it is common practice for all of the following individuals to communicate freely and collaborate on the final product EXCEPT 




A) the client company
B) equity syndicate bankers
C) M&A bankers
D) industry bankers








Answer: B

In an M&A transaction, how does the use of a meaningful portion of stock versus all cash generally impact the premium paid for the target company?

In an M&A transaction, how does the use of a meaningful portion of stock versus all cash generally impact the premium paid for the target company? 






A) It results in a higher premium
B) It results in a lower premium
C) It does not impact the premium
D) It results in a higher premium roughly half the time, and a lower premium roughly half the time







Answer: B

Which two of the following situations increase the chances for an SEC review of the merger proxy? I. Management Buyout (MBO) II. High purchase multiple III. Takes place in fourth quarter of calendar year IV. Buyer issues shares as part of the transaction

Which two of the following situations increase the chances for an SEC review of the merger proxy?
I. Management Buyout (MBO)
II. High purchase multiple
III. Takes place in fourth quarter of calendar year
IV. Buyer issues shares as part of the transaction 






A) I and III
B) I and IV
C) II and III
D) II and IV







Answer: B

Which of the following play a lead role in crafting the Background of the Merger section in the merger proxy? I. Public relations firm II. Financial advisers III.Legal counsel IV. Head of investor relations

Which of the following play a lead role in crafting the Background of the Merger section in the merger proxy?
I. Public relations firm
II. Financial advisers
III.Legal counsel
IV. Head of investor relations 





A) I and III
B) I and IV
C) II and III
D) II and IV








Answer: C

When an investment bank renders a fairness opinion for a given public target company in response to a offer from a potential acquirer, the company's Board of Directors

When an investment bank renders a fairness opinion for a given public target company in response to a offer from a potential acquirer, the company's Board of Directors 






A) Is obligated to approve the deal
B) Reviews the opinion as one item for consideration before making a recommendation on whether to accept the offer
C) Typically asks for a second opinion
D) Requires the investment bank to share its findings with the buyer







Answer: B

Who typically provides the stapled financing in a sale process?

Who typically provides the stapled financing in a sale process? 







A) The investment bank running the sale process
B) The target company being sold
C) A third party investment bank separate from the sale process
D) A third party hedge fund or debt investment fund







Answer: A

Which two investment banking groups communicate continuously and work hand-in-hand with the syndicate desk to keep apprised of market conditions and deals in the marketplace? I. M&A II. Leveraged finance III. Industry groups IV. Equity capital markets

Which two investment banking groups communicate continuously and work hand-in-hand with the syndicate desk to keep apprised of market conditions and deals in the marketplace?
I. M&A
II. Leveraged finance
III. Industry groups
IV. Equity capital markets 





A) I and III
B) I and IV
C) II and III
D) II and IV







Answer: D

Which two of the following are examples of outs as they might appear in a mark-up of a sale contract (definitive agreement)? I. Indemnity capped at $100 million II. Need for additional due diligence III. Go-shop provision IV. Firming up of financing commitments

Which two of the following are examples of outs as they might appear in a mark-up of a sale contract (definitive agreement)?
I. Indemnity capped at $100 million
II. Need for additional due diligence
III. Go-shop provision
IV. Firming up of financing commitments 





A) I and III
B) I and IV
C) II and III
D) II and IV






Answer: D

In which two of the following scenarios might a buyer decide not to hire a buy-side adviser? I. The target is too small II. The target is being sold in competitive auction III. The target is public IV. The buyer is extremely familiar with the target and has had prior discussions on price

In which two of the following scenarios might a buyer decide not to hire a buy-side adviser?
I. The target is too small
II. The target is being sold in competitive auction
III. The target is public
IV. The buyer is extremely familiar with the target and has had prior discussions on price 







A) I and III
B) I and IV
C) II and III
D) II and IV





Answer: B

What does a "one-step" merger refer to?

What does a "one-step" merger refer to?






A) Merger that is consummated in accordance with SEC filing Form S-1
B) M&A transaction whereby the acquirer steps up the value of the target's assets
C) Merger that is consummated via a simplified or "one-step" auction
D) M&A transaction that is approved by a vote from the target's shareholders









Answer: D

Which two of the following are key marketing points for a public company buyer in announcing an M&A deal to the market? I. Higher leverage for combined entity II. Cultural fit III. Lack of M&A track record IV. Synergies

Which two of the following are key marketing points for a public company buyer in announcing an M&A deal to the market?
I. Higher leverage for combined entity
II. Cultural fit
III. Lack of M&A track record
IV. Synergies






A) I and III
B) I and IV
C) II and III
D) II and IV







Answer: D

Buy-side advisers are granted access to the data room for all of the following reasons EXCEPT

Buy-side advisers are granted access to the data room for all of the following reasons EXCEPT 






A) it enables them to receive and download information real time
B) clients wants them to have direct access to important target data
C) it enables them to see other bidders' data room activity
D) it allows them to be in the information flow and coordinate with the target's advisers as appropriate








Answer: C

Synergies directly affect the calculations for which two of the following buy-side financial analyses used to determine valuation for a given target? I. Accretion/(dilution) II. Premiums paid III. LBO Analysis IV. DCF

Synergies directly affect the calculations for which two of the following buy-side financial analyses used to determine valuation for a given target?
I. Accretion/(dilution)
II. Premiums paid
III. LBO Analysis
IV. DCF 





A) I and III
B) I and IV
C) II and III
D) II and IV









Answer: B

Why do buyers hire an investment bank? I. To determine optimal bid strategy II. To run key process points III.To participate in contract negotiations with target IV. To perform detailed valuation analysis on the target

Why do buyers hire an investment bank?
I. To determine optimal bid strategy
II. To run key process points
III.To participate in contract negotiations with target
IV. To perform detailed valuation analysis on the target 






A) I and IV only
B) II and IV only
C) I, III and IV only
D) I, II, III and IV







Answer: D

An effective buy-side adviser may argue for all of the following non-financial items to make its client's offer more appealing to the target EXCEPT

An effective buy-side adviser may argue for all of the following non-financial items to make its client's offer more appealing to the target EXCEPT 






A) a larger break-up fee for a superior offer
B) a tighter sale contract (Definitive Agreement)
C) greater certainty of closing
D) strong cultural fit






Answer: A

An effective buy-side adviser may use all of the following non-financial items to make its client's offer more appealing to the target EXCEPT

An effective buy-side adviser may use all of the following non-financial items to make its client's offer more appealing to the target EXCEPT 




A) a meaningful role for management post-transaction
B) a loose Material Adverse Effect (MAE) provision in the Definitive Agreement
C) greater speed to closing
D) no antitrust risk








Answer: B

Which of the following participants in an M&A transactions typically play the key role in crafting the target company's financial projections for a sell-side process? I. Company CFO II. Legal counsel III. Outside PR firm IV. Sell-side bankers

Which of the following participants in an M&A transactions typically play the key role in crafting the target company's financial projections for a sell-side process?
I. Company CFO
II. Legal counsel
III. Outside PR firm
IV. Sell-side bankers 




A) I and III
B) I and IV
C) II and III
D) II and IV







Answer: B

Which of the following are typical buyer concerns regarding drivers of the target's future performance that an effective sell-side adviser needs to anticipate and prepare responses to during due diligence? I. Cash management strategy II. Cyclical trends III. Potential regulatory changes IV. Existing lenders

Which of the following are typical buyer concerns regarding drivers of the target's future performance that an effective sell-side adviser needs to anticipate and prepare responses to during due diligence?
I. Cash management strategy
II. Cyclical trends
III. Potential regulatory changes
IV. Existing lenders 






A) I and III
B) I and IV
C) II and III
D) II and IV




Answer: C

In the event the sell-side adviser is providing a staple financing, at what point does the staple financing team typically begin conducting due diligence on the target?

In the event the sell-side adviser is providing a staple financing, at what point does the staple financing team typically begin conducting due diligence on the target? 




A) Prior to process launch
B) Upon receipt of first round bids
C) At the management presentations
D) During the staple financing marketing period






Answer: A

A public company wishes to communicate with an analyst who claims to have uncovered negative information about its products. The company also wishes to give the analyst comments that will help him correct his forecast. Which of the following activities does Regulation FD allow? I. Comments to the analyst on the forecast, provided no new material information is disclosed II. Disclosure of material information to the analyst, provided it is accurate and used to correct an apparent error III. Disclosure of material information to the analyst, with an "express agreement" to keep the information confidential.

A public company wishes to communicate with an analyst who claims to have uncovered negative information about its products. The company also wishes to give the analyst comments that will help him correct his forecast. Which of the following activities does Regulation FD allow?
I. Comments to the analyst on the forecast, provided no new material information is disclosed
II. Disclosure of material information to the analyst, provided it is accurate and used to correct an apparent error
III. Disclosure of material information to the analyst, with an "express agreement" to keep the information confidential.






A) I and II only
B) I and III only
C) II and III only
D) I, II and III






Answer: B

Why might a seller prefer an asset sale to a stock sale?

Why might a seller prefer an asset sale to a stock sale? 




A) Higher valuation
B) Shorter process timeline
C) Less legal documentation
D) Cannot use cash as purchase consideration in stock sale



Answer: A

Which two of the following opportunities are typically layered in to the standalone valuation analysis performed on the target by buy-side advisers? I. Break-up fee II. Bolt-on acquisitions III. Synergies IV. Reps and Warranties

Which two of the following opportunities are typically layered in to the standalone valuation analysis performed on the target by buy-side advisers?
I. Break-up fee
II. Bolt-on acquisitions
III. Synergies
IV. Reps and Warranties 



A) I and III
B) I and IV
C) II and III
D) II and IV







Answer: C

In an M&A sales, which of the following are typical buyer concerns that an effective sell-side adviser needs to anticipate and prepare responses for during due diligence? I. Interest income on cash on balance sheet II. Company's future growth drivers III.Sustainability of margins IV. Investor relations position

In an M&A sales, which of the following are typical buyer concerns that an effective sell-side adviser needs to anticipate and prepare responses for during due diligence?
I. Interest income on cash on balance sheet
II. Company's future growth drivers
III.Sustainability of margins
IV. Investor relations position 



A) I and II
B) I and III
C) II and III
D) II and IV








Answer: C

A buyer's final bid package is expected to include all of the following EXCEPT

A buyer's final bid package is expected to include all of the following EXCEPT 




A) A markup of the draft definitive agreement provided by the seller
B) The detailed financial model used to craft the final bid price
C) The Board of Directors' approvals (if appropriate)
D) Evidence of committed financing and information on financing sources








Answer: B

Which two of the following typically take the lead in crafting the first draft of the press release announcing a given transaction for a public company? I. Research analyst with longstanding coverage of the company II. Head of investor relations III. Legal counsel IV. Public relations firm

Which two of the following typically take the lead in crafting the first draft of the press release announcing a given transaction for a public company?
I. Research analyst with longstanding coverage of the company
II. Head of investor relations
III. Legal counsel
IV. Public relations firm






A) I and III
B) I and IV
C) II and III
D) II and IV







Answer: D

All of the following are reasons why acquirers spend a great deal of time crafting the optimal financing mix for a given purchase price for an M&A target EXCEPT

All of the following are reasons why acquirers spend a great deal of time crafting the optimal financing mix for a given purchase price for an M&A target EXCEPT






A) Rating agencies' views
B) Cost-of-capital considerations
C) Capital markets conditions
D) Implied transaction multiples





Answer: D

The buy-side adviser uses all of the following tactics to inform its client's negotiating strategy in an auction process EXCEPT

The buy-side adviser uses all of the following tactics to inform its client's negotiating strategy in an auction process EXCEPT 





A) direct conversations with sell-side adviser
B) analysis of whether other potential bidders are in the process
C) aggressive DCF valuation
D) assessment of the target's key sale priorities






Answer: C

Why do public strategic bidders typically perform LBO Analysis as part of their valuation work?

Why do public strategic bidders typically perform LBO Analysis as part of their valuation work? 





A) To Comply with an SEC requirement enacted in 2005
B) To assess the possibility of bidding for the target in a separate leveraged entity
C) To determine what competing financial sponsors might bid for the target
D) Their existing lenders require this type of analysis to be performed







Answer: C

How is the sharing of sensitive due diligence information with direct competitor bidders typically handled?

How is the sharing of sensitive due diligence information with direct competitor bidders typically handled? 





A) It is not shared until after the definitive agreement is signed
B) It is shared as late in the process as practicable
C) It is shared at the management presentation
D) It is never shared, so direct competitors must use best efforts and industry knowledge to estimate this information







Answer: B

All of the following resources outside of the target company and its sale process would likely provide the buy-side adviser with valuable insights and an edge on due diligence EXCEPT

All of the following resources outside of the target company and its sale process would likely provide the buy-side adviser with valuable insights and an edge on due diligence EXCEPT





A) relationships and familiarity with companies in the target's sector
B) active participation at the target's management presentation
C) relationships and familiarity with the target's suppliers and customers
D) prior M&A experience with precedent transactions in the target's sector






Answer: B

All of the following due diligence findings might result in the buy-side adviser recommending that its client raise its offer price EXCEPT

All of the following due diligence findings might result in the buy-side adviser recommending that its client raise its offer price EXCEPT 








A) a labor union contract is set to expire
B) synergies are greater than expected
C) exceptional quality of the target's management team
D) new product development opportunities







Answer: A

Which two of the following does the buy-side adviser typically attend together with its client? I. Definitive Agreement drafting sessions II. HSR approval session III. Buyer board meeting at which the given acquisition is assessed IV. Target auditor's offices

Which two of the following does the buy-side adviser typically attend together with its client?

I. Definitive Agreement drafting sessions
II. HSR approval session
III. Buyer board meeting at which the given acquisition is assessed
IV. Target auditor's offices 





A) I and III
B) I and IV
C) II and III
D) II and IV






Answer: A

In an M&A deal purchasing synergies refer to

In an M&A deal purchasing synergies refer to 








A) premiums paid justified by expected synergies
B) the ability to buy inputs more cheaply due to increased purchasing volumes
C) purchase price adjustments due to synergies
D) synergies from purchasing out contracts from key target employees








Answer: B

The sell-side adviser's key responsibilities for coordinating second round due diligence include all of the following EXCEPT

The sell-side adviser's key responsibilities for coordinating second round due diligence include all of the following EXCEPT 






A) ensuring bidders have appropriate buy-side advisers
B) facilitating the prospective buyers' ability to gather information and conduct detailed analysis
C) keeping to the established schedule
D) maintaining a competitive atmosphere







Answer: A

For a buy-side banker advising its client, which of the following changes to contractual items might make its client's offer MORE appealing to the target?

For a buy-side banker advising its client, which of the following changes to contractual items might make its client's offer MORE appealing to the target? 






A) A higher break-up fee
B) Tighter Material Adverse Effect (MAE) provision in the Definitive Agreement
C) Tighter target covenants
D) Increased indemnification rights






Answer: B

Which two of the following does the buy-side adviser typically attend together with its client? I. HSR application session II. Site visits III. Target company Board meeting IV. Management presentations

Which two of the following does the buy-side adviser typically attend together with its client?
I. HSR application session
II. Site visits
III. Target company Board meeting
IV. Management presentations 




A) I and III
B) I and IV
C) II and III
D) II and IV








Answer: D

All of the following are fair statements regarding the material adverse changes (MAC) provision in a definitive agreement EXCEPT

All of the following are fair statements regarding the material adverse changes (MAC) provision in a definitive agreement EXCEPT 





A) It is a highly negotiated provision in the contract
B) If established, a MAC provides grounds for the buyer to terminate the deal
C) Sellers typically seek to have high hurdles for buyers to establish that a MAC has occurred
D) Buyers typically seek to have high hurdles to establish that a MAC has occurred










Answer: D

Which of the following buy-side due diligence discovery items might lead to a buyer deducting from its first round bid price?

Which of the following buy-side due diligence discovery items might lead to a buyer deducting from its first round bid price? 





A) Additional cash and marketable securities on the target's balance sheet
B) Redundant job positions at the target
C) High debt breakage costs
D) Bloated corporate cost structure at the target




Answer: C

Within the context of M&A processes, what does a negotiated sale refer to?

Within the context of M&A processes, what does a negotiated sale refer to?





A) A long-term, highly negotiated sale from a key vendor
B) A large volume sale to an important customer prior to a deal closing
C) A sale process in which the seller negotiates a definitive agreement with multiple bonafide parties
D) A sale process centered on a direct dialogue with a single prospective buyer











Answer: D

The typical CIM contains all of the following EXCEPT

The typical CIM contains all of the following EXCEPT





A) Target financial projections and MD&A
B) Information on target's industry and competitive dynamics
C) Investment highlights
D) Preliminary valuation analysis of the target







Answer: D

Under what circumstances can a buyer withdraw from a sale process after it has submitted a first round bid?

Under what circumstances can a buyer withdraw from a sale process after it has submitted a first round bid?







A) At any time with no approvals necessary
B) With written approval from the seller
C) When proof of change in financing conditions or other buyer circumstances is provided
D) With approvals from the SEC or other appropriate local finance authority








Answer: A

Which two of the following are often heavily negotiated in a confidentiality agreement between two corporations? I. Initial bid date II. Length of term III. Indicative purchase price IV. Non-solicitation

Which two of the following are often heavily negotiated in a confidentiality agreement between two corporations?
I. Initial bid date
II. Length of term
III. Indicative purchase price
IV. Non-solicitation








A) I & III
B) I & IV
C) II & III
D) II & IV










Answer: D

Which of the following are key components of the second round of a traditional auction? I. Site visits II. Distribution and mark up of the definitive agreement III. Management presentation IV. Data room analysis and review

Which of the following are key components of the second round of a traditional auction?
I. Site visits
II. Distribution and mark up of the definitive agreement
III. Management presentation
IV. Data room analysis and review




A) I & III
B) I, II, & III
C) I, II, & IV
D) I, II, III, & IV










Answer: D

Which two of the following do buyers typically plan on bringing with them to the management presentation for a given target? I. Outside legal counsel II. Operating Partners III. Investment bankers IV. Auditors

Which two of the following do buyers typically plan on bringing with them to the management presentation for a given target?
I. Outside legal counsel
II. Operating Partners
III. Investment bankers
IV. Auditors






A) I & III
B) I & IV
C) II & III
D) II & IV






Answer: C

At what stage in the M&A process do buyers start to line up financing sources?

At what stage in the M&A process do buyers start to line up financing sources?






A) In conjunction with formulating first round bids
B) After being selected to enter the second round
C) In conjunction with marking up the definitive agreement
D) After the signing of the definitive agreement







Answer: A

ABC Corporation has experienced a decline in working capital over the past year. Its current liabilities are the same as a year ago. Which of the following must be true?

ABC Corporation has experienced a decline in working capital over the past year. Its current liabilities are the same as a year ago. Which of the following must be true? 







A) Net debt has declined
B) Current assets have declined
C) Cash has increased
D) Free cash flow has increased










Answer: B

Goodwill refers to which of the following?

Goodwill refers to which of the following? 






A) The excess amount paid for a target over its existing book value
B) The excess amount paid for a target over its existing market value
C) The percentage of the acquirer's market value offered to a target
D) The percentage of the acquirer's book value offered to a target







Answer: A


Inventory turns is calculated as

Inventory turns is calculated as 







A) debt/average inventory
B) cash/average inventory
C) COGS/average inventory
D) net income/average inventory






Answer: C

A $50 million increase in capital expenditures during 2010 would result in a

A $50 million increase in capital expenditures during 2010 would result in a 






A) $50 million increase in net income
B) $50 million increase in non-current assets
C) $50 million decrease in non-current assets
D) $50 million increase in total liabilities









Answer: B

A company's hurdle rate on proposed investments is 8.5%. The company is evaluating a proposed investment costing $35 million that will produce a series of projected annual cash flows over a period of 10 years, so that the 10-year internal rate of return (IRR) is 7.7%. How could the company increase the IRR so that the hurdle rate is met?

A company's hurdle rate on proposed investments is 8.5%. The company is evaluating a proposed investment costing $35 million that will produce a series of projected annual cash flows over a period of 10 years, so that the 10-year internal rate of return (IRR) is 7.7%. How could the company increase the IRR so that the hurdle rate is met? 






A) Reduce the analysis period to less than 10 years
B) Reduce the cost of capital
C) Evaluate cash flows on a monthly basis
D) Reduce the cost of the investment







Answer: D

A company has an inventory turnover ratio of 1.5. If the company pays 5% more each year to acquire inventory, what will be the impact on this ratio over time resulting from a shift from LIFO to FIFO inventory accounting?

A company has an inventory turnover ratio of 1.5. If the company pays 5% more each year to acquire inventory, what will be the impact on this ratio over time resulting from a shift from LIFO to FIFO inventory accounting? 





A) The turnover ratio will increase
B) The turnover ratio will stay the same
C) The turnover ratio will decrease
D) The company's method of calculating turnover ratio will change







Answer: C

The market risk premium refers to which of the following?

The market risk premium refers to which of the following? 







A) The spread of the expected market return over the risk-free rate
B) The expected rate of return obtained by investing in a "riskless" security
C) A measure of the covariance between the rate of return on a company's stock and the overall market return
D) The required annual rate of return that a company's equity investors expect to receive






Answer: A

Capital expenditures refer to which of the following?

Capital expenditures refer to which of the following? 





A) Funds that a company uses to purchase, improve, expand, or replace physical assets
B) An expense that approximates the reduction of the book value of a company's long-term fixed assets
C) An expense that reduces the value of a company's definite life intangible asset
D) A measure of how much cash a company needs to fund its operations on an ongoing basis







Answer: A

Company A has a very young workforce. Company B has a relatively old workforce. Both companies have pension plan funding ratios of .85. If interest rates decline, which company's funding ratio is more vulnerable?

Company A has a very young workforce. Company B has a relatively old workforce. Both companies have pension plan funding ratios of .85. If interest rates decline, which company's funding ratio is more vulnerable? 




A) Company A
B) Company B
C) They are equally vulnerable
D) Neither is vulnerable








Answer: A

A small company has a cost of equity of 12.5%. The risk-free rate is 4.2%, the market risk premium is 5.0%, and the company's stock has a beta of 1.2. Has any small company "size premium" been assigned?

A small company has a cost of equity of 12.5%. The risk-free rate is 4.2%, the market risk premium is 5.0%, and the company's stock has a beta of 1.2. Has any small company "size premium" been assigned? 




A) No
B) Yes, the premium is .85%
C) Yes, the premium is 1.25%
D) Yes, the premium is 2.30%









Answer: D

Depreciation refers to which of the following?

Depreciation refers to which of the following? 






A) Funds that a company uses to purchase, improve, expand, or replace physical assets
B) An expense that approximates the reduction of the book value of a company's long-term fixed assets
C) An expense that reduces the value of a company's definite life intangible asset
D) A measure of how much cash a company needs to fund its operations on an ongoing basis








Answer: B

The lower a company's DSO, the faster it

The lower a company's DSO, the faster it






A) accrues wage expenses
B) pays cash for prepaid expenses
C) receives cash from credit sales
D) pays vendors for services provided







Answer: C

The current ratio is a measure of

The current ratio is a measure of 






A) leverage
B) liquidity
C) capitalization
D) interest coverage








Answer: B

In a discounted cash flow analysis, the present value calculation is performed by multiplying the free cash flow for each year in the projection period and the terminal value by its respective

In a discounted cash flow analysis, the present value calculation is performed by multiplying the free cash flow for each year in the projection period and the terminal value by its respective 



A) weighted average cost of capital
B) discount factor
C) discount rate
D) cost of equity










Answer: B

Prepaid expenses are considered a current asset for which of the following reasons?

Prepaid expenses are considered a current asset for which of the following reasons? 




A) It represents cash paid for a service that provide a benefit to be received within one year
B) It can be converted into cash within one year
C) It represents a non-cash item
D) It is expensed as depreciation on the income statement










Answer: A

Net working capital is represented by which of the following?

Net working capital is represented by which of the following? 





A) Current assets plus current liabilities
B) Current assets divided by current liabilities
C) Current assets multiplied by current liabilities
D) Current assets minus current liabilities








Answer: D

Company D has a cost of equity capital of 14.0% and recently issued 8.0% debt, which currently trades at 104. Assuming the company has 40% equity in its capital structure and has a 40% marginal tax rate, what is its Weighted Average Cost of Capital (WACC)?

Company D has a cost of equity capital of 14.0% and recently issued 8.0% debt, which currently trades at 104. Assuming the company has 40% equity in its capital structure and has a 40% marginal tax rate, what is its Weighted Average Cost of Capital (WACC)?





A) 8.4%
B) 10.2%
C) 10.4%
D) 11.0%









Answer: A

Current the risk-free rate is 3.5% and the expected return of the S&P 500 is 11%. For a company whose stock has a beta of 1.7 what would be its cost of equity capital, calculated in accordance with CAPM?

Current the risk-free rate is 3.5% and the expected return of the S&P 500 is 11%. For a company whose stock has a beta of 1.7 what would be its cost of equity capital, calculated in accordance with CAPM?






A) 12.75%
B) 16.25%
C) 22.20%
D) 39.00%








Answer: B

Which of the following are the most commonly used ratios for measuring the velocity of a company's fluctuation in products held for sale? I. Inventory Turns II. Inventory as a percentage of sales III. Inventory Obsolescence IV. Days Inventory

Which of the following are the most commonly used ratios for measuring the velocity of a company's fluctuation in products held for sale?
I. Inventory Turns
II. Inventory as a percentage of sales
III. Inventory Obsolescence
IV. Days Inventory





A) I & III
B) I & IV
C) II & III
D) II & IV









Answer: B

Net working capital refers to which of the following?

Net working capital refers to which of the following?








A) Funds that a company uses to purchase, improve, expand or replace physical assets
B) An expense that approximates the reduction of the book value of a company's long-term fixed assets
C) An expense that reduces the value of a company's definite life intangible assets
D) A measure of how much cash a company needs to fund its operations on an ongoing basis









Answer: D

A company had sales of $500 million, operating expenses of $50 million, and EBITDA of $25 million during the past year. At the same time, accounts receivable increased by $50 million. How much actual cash did the company receive during the year from its sales?

A company had sales of $500 million, operating expenses of $50 million, and EBITDA of $25 million during the past year. At the same time, accounts receivable increased by $50 million. How much actual cash did the company receive during the year from its sales?





A) $0
B) ($25) million
C) $450 million
D) $500 million








Answer: C

What does the control premium refer to in an M&A transaction?

What does the control premium refer to in an M&A transaction? 




A) The right for the acquirer to control decisions regarding the target's business
B) The right for the acquirer to control the premium paid to target shareholders
C) Premium for controlling the process timing
D) The acquirer's attempt to control target shareholders









Answer: A

What are potential concerns over using Precedent Transactions to value a company? I. Existence of sufficient number of comparable transactions II. Lack of market basis III. Time period when comparable transactions took place IV. Reliance on use of IBES consensus estimates

What are potential concerns over using Precedent Transactions to value a company?
I. Existence of sufficient number of comparable transactions
II. Lack of market basis
III. Time period when comparable transactions took place
IV. Reliance on use of IBES consensus estimates 






A) I and III
B) I and IV
C) II and III
D) II and IV







Answer: A

For which reasons might target shareholders prefer cash to stock as purchase consideration in an M&A transaction? I. Maximum liquidity II. Ability to retain upside III. Synergies IV. Certainty of value

For which reasons might target shareholders prefer cash to stock as purchase consideration in an M&A transaction?
I. Maximum liquidity
II. Ability to retain upside
III. Synergies
IV. Certainty of value 





A) I and III
B) I and IV
C) II and III
D) II and IV








Answer: B

Which of the following are useful when screening for precedent transactions for a given company? I. Merger proxies for comparable companies II. Target's M&A history III.SDC Platinum IV. Research report

Which of the following are useful when screening for precedent transactions for a given company?
I. Merger proxies for comparable companies
II. Target's M&A history
III.SDC Platinum
IV. Research report 





A) I and III only
B) II and IV only
C) I, III, and IV only
D) I, II, III, and IV








Answer: D

Which two of the following are helpful resources for creating a universe of precedent transactions for a given company? I. SDC Platinum II. Company 10-Q III. Fairness opinions for comparable companies IV. Most recent company research report

Which two of the following are helpful resources for creating a universe of precedent transactions for a given company?
I. SDC Platinum
II. Company 10-Q
III. Fairness opinions for comparable companies
IV. Most recent company research report 







A) I and III
B) I and IV
C) II and III
D) II and IV







Answer: A

All of the following help explain why Precedent Transactions are calculated on the basis of the target's LTM earnings versus earnings estimates EXCEPT:

All of the following help explain why Precedent Transactions are calculated on the basis of the target's LTM earnings versus earnings estimates EXCEPT: 





A) Acquisition financing is typically based on the target's LTM financial metrics
B) LTM financial data serves as a universal standard that can be calculated from public filings
C) Buyers are less interested in future earnings
D) Buyers assume responsibility for future earnings








Answer: C

What is a fixed exchange ratio in an M&A transaction?

What is a fixed exchange ratio in an M&A transaction? 




A) The ratio of cash used as part of purchase consideration
B) The fixed ratio of the target's stock shares versus bonds traded on an exchange
C) The ratio of stock used as a portion of purchase consideration
D) The ratio of the number of shares of the acquirer's stock to be exchanged for each share of the target's stock









Answer: D

Use the information in Exhibit 35 to answer the following question. What is the most likely explanation for KLM Manufacturing's stock price being excluded from this analysis?

Use the information in Exhibit 35 to answer the following question. What is the most likely explanation for KLM Manufacturing's stock price being excluded from this analysis? 






A) The analyst preparing the information did not think the premium paid for the KLM merger was relevant.
B) KLM was privately held at the time of the transaction and did not have any publicly traded common stock.
C) KLM was purchased in an all cash transaction.
D) KLM was purchased in an all stock transaction.








Answer: B

In an M&A transaction, on what basis is the premium paid to target shareholders typically calculated?

In an M&A transaction, on what basis is the premium paid to target shareholders typically calculated? 






A) The target's share price on the day after deal announcement
B) The target's share price on the day prior to deal announcement
C) The target's share price on the day of deal officially closing
D) The target's share price for 30 day period following deal announcement











Answer: B

In an M&A transaction, which of the following best explains why the premium paid is typically calculated on the basis of the target share price at multiple intervals prior to announcement?

In an M&A transaction, which of the following best explains why the premium paid is typically calculated on the basis of the target share price at multiple intervals prior to announcement? 






A) To control for market gyrations and potential target share price creep
B) To attempt to determine the date the acquirer made its final decision to approach the target
C) To attempt to determine the date the acquirer finalized the value of its offer price to the target
D) It is the best method for determining the average of contemplated offer prices by the buyer









Answer: A

Which criteria are relevant for determining whether a given precedent transaction is relevant for valuing the target company in an M&A scenario: I. Target company sector II. Period during which the transaction took place III. Size of target company IV. Target company domicile

Which criteria are relevant for determining whether a given precedent transaction is relevant for valuing the target company in an M&A scenario:
I. Target company sector
II. Period during which the transaction took place
III. Size of target company
IV. Target company domicile 






A) I, II and III
B) I and III
C) II, and IV
D) I, II, III, and IV









Answer: D

For which reasons might target shareholders prefer stock to cash as purchase consideration in an M&A transaction? I. Tax planning II. Fixed value III. Ability to retain upside IV. Highest premium paid

For which reasons might target shareholders prefer stock to cash as purchase consideration in an M&A transaction?
I. Tax planning
II. Fixed value
III. Ability to retain upside
IV. Highest premium paid 






A) I and III
B) I and IV
C) II and III
D) II and IV








Answer: A

Which of the following are reasons that Precedent Transactions multiples typically higher than those for Comparable Companies? I. Scarcity of meaningful precedent transactions II. Synergies III. Control premium IV. Quick M&A process timing

Which of the following are reasons that Precedent Transactions multiples typically higher than those for Comparable Companies?
I. Scarcity of meaningful precedent transactions
II. Synergies
III. Control premium
IV. Quick M&A process timing 






A) I and III
B) I and IV
C) II and III
D) II and IV







Answer: C

What does the control premium refer to in an M&A transaction?

What does the control premium refer to in an M&A transaction?







A) The right for the acquirer to control decisions regarding the target's business
B) The right for the acquirer to control the premium paid to target shareholders
C) Premium for controlling the process timing
D) The acquirer's attempt to control target shareholders








Answer: A

For a public company with 200 million basic shares outstanding, if one were to buy 110 million shares versus 110 shares, the investor would expect to pay

For a public company with 200 million basic shares outstanding, if one were to buy 110 million shares versus 110 shares, the investor would expect to pay






A) The same price per share for the 110 million shares as the 110 shares
B) A higher price per share for the 110 million shares than the 110 shares
C) A lower price per share for the 110 million shares than the 110 shares
D) A higher price per share for the 110 million shares than the 110 shares roughly half the time







Answer: B

All of the following help explain why precedent transactions are calculated on the basis of the target's LTM earnings versus earnings estimates EXCEPT

All of the following help explain why precedent transactions are calculated on the basis of the target's LTM earnings versus earnings estimates EXCEPT







A) Acquisition financing is typically based on the target's LTM financial metrics
B) LTM financial data serves as a universal standard that can be calculated from public filings
C) Buyers are less interested in future earnings
D) Buyers assume responsibility for future earnings





Answer: C

Which criteria are relevant for determining whether a given precedent transaction is relevant for valuing the target company in an M&A scenario? I. Target company sector II. Period during which the transaction took place III. Size of target company IV. Target company domicile

Which criteria are relevant for determining whether a given precedent transaction is relevant for valuing the target company in an M&A scenario?
I. Target company sector
II. Period during which the transaction took place
III. Size of target company
IV. Target company domicile



A) I & III
B) II & IV
C) I, II, & III
D) I, II, III, & IV










Answer: D

What restrictions are typically in place on a day-to-day basis to regulate communication between industry banks and M&A investment bankers?

What restrictions are typically in place on a day-to-day basis to regulate communication between industry banks and M&A investment bankers? 





A) Only public situations may be discussed
B) Only public companies and private companies with at least $1 billion in sales may be discussed
C) Compliance approval is needed for all face-to-face meetings
D) There are no specific rules governing the nature of these communications





Answer: D

Adjusting for non-recurring items is essential when analyzing a company because I. It is a requirement under SEC regulations II. It provides an indicative view of a company's performance III. Failure to do so may lead to the calculation of misleading ratios and multiples IV. It is a primary means to detect accounting fraud

Adjusting for non-recurring items is essential when analyzing a company because
I. It is a requirement under SEC regulations
II. It provides an indicative view of a company's performance
III. Failure to do so may lead to the calculation of misleading ratios and multiples
IV. It is a primary means to detect accounting fraud 




A) I and III
B) I and IV
C) II and III
D) II and IV







Answer: C

Which of the following are primary business-related characteristics to consider when locating companies to use in a comparable companies analysis? I. Sector II. Deal dynamics III. Products and Services IV. Purchase consideration

Which of the following are primary business-related characteristics to consider when locating companies to use in a comparable companies analysis?
I. Sector
II. Deal dynamics
III. Products and Services
IV. Purchase consideration 





A) I and III
B) I and IV
C) II and III
D) II and IV










Answer: A

Where might one be able to gather business, financial and market information on a private company? I. Earnings call transcripts II. Research reports for public competitors III. The company's most recent 10-Q IV. Trade magazines and journals

Where might one be able to gather business, financial and market information on a private company?
I. Earnings call transcripts
II. Research reports for public competitors
III. The company's most recent 10-Q
IV. Trade magazines and journals 








A) I and III
B) I and IV
C) II and III
D) II and IV






Answer: D

Which of the following best describes EDGAR?

Which of the following best describes EDGAR? 




A) Database for collection of SEC filings
B) Division of the SEC responsible for anti-trust cases
C) Merger proxy section
D) Database for consensus research estimates











Answer: A

Which of the following are helpful resources for creating a universe of comparable companies for a given public company? I. Equity research reports II. Form 13F III. Fairness opinions for comparable companies IV. Schedule 13D

Which of the following are helpful resources for creating a universe of comparable companies for a given public company?
I. Equity research reports
II. Form 13F
III. Fairness opinions for comparable companies
IV. Schedule 13D 




A) I and III
B) I and IV
C) II and IV
D) III and IV









Answer: A

Which of the following are necessary for an item to be classified as extraordinary? I. The item must be infrequent in occurrence II. The item must be non-material in nature III. The item must be likely to occur in the future IV. The item must be unusual in nature

Which of the following are necessary for an item to be classified as extraordinary?
I. The item must be infrequent in occurrence
II. The item must be non-material in nature
III. The item must be likely to occur in the future
IV. The item must be unusual in nature 





A) I and III
B) I and IV
C) II and III
D) II and IV










Answer: B

A company has a target of generating a return on invested capital (ROIC) of at least 12%. The company's total capital, including equity, debt and preferred shares, is $200 million. It pays out $11 million in annual dividends on common stock. What net income will hit the ROIC target?

A company has a target of generating a return on invested capital (ROIC) of at least 12%. The company's total capital, including equity, debt and preferred shares, is $200 million. It pays out $11 million in annual dividends on common stock. What net income will hit the ROIC target? 





A) At least $13 million
B) At least $24 million
C) At least $35 million
D) At least $49 million










Answer: B

Key advantages for Comparable Companies as a valuation methodology include which of the following? I. It is market-based II. It reflects a company's future long-term free cash flow generation III. The analysis can include both public and private companies IV. It is not dependent on long-term company performance assumptions

Key advantages for Comparable Companies as a valuation methodology include which of the following?
I. It is market-based
II. It reflects a company's future long-term free cash flow generation
III. The analysis can include both public and private companies
IV. It is not dependent on long-term company performance assumptions 






A) I and III
B) I and IV
C) II and III
D) II and IV









Answer: B

For a company with total debt of $60 million, most of which is short-term, how will a sharp increase in interest rates affect the company's interest coverage ratio?

For a company with total debt of $60 million, most of which is short-term, how will a sharp increase in interest rates affect the company's interest coverage ratio? 






A) Interest coverage ratio will increase
B) Interest coverage ratio will decline
C) Interest coverage ratio will not be affected
D) It will cause EBIT to increase








Answer: B

Which of the following are financial-related characteristics to consider when locating companies to use in a comparable companies analysis? I. Market conditions II. Size III. Profitability IV. Deal dynamics

Which of the following are financial-related characteristics to consider when locating companies to use in a comparable companies analysis?
I. Market conditions
II. Size
III. Profitability
IV. Deal dynamics 






A) I and III
B) I and IV
C) II and III
D) II and IV












Answer: C

To be classified as "extraordinary" on the income statement, an expense item must be nonrecurring, material and differ significantly from a company's typical activities. In addition, it must be:

To be classified as "extraordinary" on the income statement, an expense item must be nonrecurring, material and differ significantly from a company's typical activities. In addition, it must be: 






A) Attributable to a specific segment
B) Reported as part of operating income
C) Unusual and infrequent
D) Unpredictable or unforeseeable








Answer: C

Interest coverage is a measure of

Interest coverage is a measure of 





A) a company's overall debt level
B) a company's ability to meet its short-term obligations
C) a company's covenant cushion
D) a company's ability to meet its interest payments









Answer: D

Leverage is a measure of

Leverage is a measure of 






A) a company's overall debt level
B) a company's ability to meet its short-term obligations
C) a company's covenant cushion
D) a company's ability to meet its interest payments








Answer: A
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