FIN 13292 | Course Paper

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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%

If a computer manufacturer purchases a semiconductor company, what form of

integration is this?

A. Horizontal integration

B. Vertical integration

C. Backward integration

D. Forward integration

Which of the following may be an advantage of a pursuing a strategic buyer in the

M&A process?

A. Less financing risk

B. Operating leverage

C. Ability to realize synergies

D. Both A and C

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

In a traditional LBO analysis, it is common practice to assume an exit multiple that is:

A. Below the entry multiple

B. Above the entry multiple

C. Equal to the entry multiple

D. Both A and C

In a football field graphic for an M&A transaction, which of the following is a proxy for

what a financial buyer would be willing to pay for the company?

A. Precedent transactions analysis

B. DCF

C. LBO

D. Comparable companies analysis

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

Calculate the company’s free cash flow given the following information.

ﾧ

A. $250.0mm

B. $340.0mm

C. $500.0mm

D. $300.0mm

Based on Moody’s rating scale, what grade is Baa1 considered?

A. High quality

B. Highly speculative

C. Medium grade

D. Extremely speculative

Acquirer share price volatility after a deal is announced is a reason why a target’s

shareholders may find:

A. Equity financing less desirable

B. Debt financing less desirable

C. Equity financing more desirable

D. A mix of debt and equity financing is less desirable

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

When evaluating strategic buyers, which of the following should be taken into

consideration?

A. Financial capacity

B. Sector expertise

C. Investment strategy

D. Both A and B

Which of the following in a buy-side M&A transaction employs analysis at different

prices to help analyze and frame valuation?

A. Football field

B. AVP

C. Contribution analysis

D. Consequences analysis

In a(n) __________, the target survives the transaction and may choose to either

continue operations or dissolve after distributing the proceeds from the sale to its equity

holders.

A. Asset sale

B. Stock sale

C. Fire sale

D. None of the above

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

When building a pre-LBO model, a banker builds the cash flow statement through what

point?

A. Operating activities

B. Financing activities

C. Investing activities

D. The cash flow statement is not built in the pre-LBO model

Calculate the present value of FCF using a year-end discount factor given the following

information.

A. $180.0m

B. $200.0m

C. $185.0mm

D. $190.0m

Capex is expensed over its useful life through which of the following?

A. Depreciation

B. Amortization

C. EBIAT

D. Goodwill

What is the main source of financing in a leveraged buyout?

A. Debt

B. Equity

C. Assets

D. Cash

Which variable generally represents the majority of a DCF valuation?

A. CAPM

B. Beta

C. WAAC

D. Terminal value

In an LBO model, which scenario is considered the most conservative?

A. Management case

B. Base case

C. Sponsor case

D. Downside case

Which calculation measures the return generated by all capital provided to a company?

A. ROE

B. ROA

C. ROIC

D. ROI

All of the following are reasons why M&A activity tends increase in strong economic

times EXCEPT:

A. High management confidence

B. Financing is readily available

C. Companies have excess cash

D. Companies focus on fortifying their balance sheets

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

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 company’s operating cash flow

II. It is free from differences resulting from capital structure

III. It represents the profit after all of a company’s expenses have been netted out

IV. It is free from differences in tax expenses

A. It represents a more accurate look at a company’s operating cash flow

B. It is free from differences resulting from capital structure

C. It represents the profit after all of a company’s expenses have been netted out

D. It is free from differences in tax expenses

Stapled financing is a(n):

A. Optimal financing structure

B. Customized financing structure

C. Pre-packaged financing structure

D. None of the above

What is the annual interest rate paid on a debt obligation’s principal amount outstanding

called?

A. Covenant

B. Coupon

C. Call premium

D. PIK

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

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

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%

Which of the following is performed during the first stage of the auction process?

A. Prepare confidentiality agreement

B. Contact prospective buyers

C. Receive board approval

D. Conduct management presentation

All of the following are primary classifications of covenants EXCEPT:

A. Affirmative

B. Negative

C. Maintenance

D. Financial

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

Which of the following is performed during the final stage of the auction process?

A. Select winning bidder

B. Distribute final bid procedures letter and draft definitive agreement

C. Financing

D. Contact prospective buyers