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INVESTMENT BANKING
FIN 4018
Unit 6: Tutorial Questions – Comparable Companies Analysis
1. What is the premise behind comparable companies analysis?
2. Select all that apply. What are some of the key business characteristics to examine when
screening for comparable companies?
a) Sector
b) Return on investment
c) End markets
d) Distribution channels
3. Select all that apply. What are some of the key financial characteristics to examine when
screening for comparable companies?
a) Profitability
b) Growth profile
c) Customers
d) Credit profile
4. Company A and Company B are peer companies in terms of business characteristics, but they
are currently trading at substantially different multiples. What discrepancies in financial
characteristics could help explain this situation?
5. What is EBITDA and why it is useful for relative comparison when using enterprise value
trading multiples?
a) Earnings before insurance, taxes, depreciation and amortization
b) Earnings before interest, taxes, depreciation and amortization
c) It is free from differences resulting from capital structure, tax regime, accounting
policies, and capital spending
d) It is viewed as the earnings available to equity holders once all of the company’s
obligations have been satisfied
6. What are the two most generic and widely used valuation multiples?
a) Enterprise Value-to-EBITDA
b) Total Debt-to-EBITDA
c) Price-to-Earnings (P/E)
d) Equity Value-to-Cash Flow
7. Given the assumptions below, calculate fully diluted shares outstanding using the
Treasury Stock Method.($ in millions, except per share data; shares in millions)
Assumptions
Current Share Price
$40.00
Basic Shares Outstanding
200.0
Options Outstanding
10.0
Weighted Average Exercise Price
$26.00
8. Given the assumptions below, calculate equity value and enterprise value.
($ in millions, except per share data; shares in millions)
Assumptions
Current Share Price
$20.00
Fully Diluted Shares Outstanding
Total Debt
250.0
Preferred Stock
25.0
Noncontrolling Interest
Cash and Cash Equivalents
50.0
FYE 12/31/07
YTD 9/30/07
600.0
