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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
If a merger or acquisition is not immediately accretive, should the acquirer go through
with the transaction? Why or why not?
A. No, the transaction will dilute the EPS and destroy shareholder value
B. Yes, accretion/dilution is not important
C. It depends; expected synergies and growth prospects may make the deal accretive
and therefore create shareholder value
D. No, once a deal is dilutive it cannot become accretive
Which of the following is true regarding the number of the acquirer’s shares exchanged
in a fixed exchange ratio structure?
A. It remains constant
B. It goes up
C. It fluctuates
D. It goes down
What happens in a two-step tender process if the buyer fails to acquire enough of the
target’s shares within 20 business days?
A. The merger is “busted”
B. The buyer gets additional time
C. A shareholders meeting must be completed
D. None of the above
All of the following are intangible assets EXCEPT:
A. Brand
B. Patents
C. PP&E
D. Copyrights
Which of the following criteria should be considered when evaluating a potential
financial sponsor buyer?
A. Investment strategy
B. Fund size
C. Synergies
D. Both A and B
Which of the following is a negative feature of debt financing?
A. Tax deductibility
B. ROE
C. Covenants
D. EPS accretion
All of the following are deal considerations that sell-side advisors seek to achieve
EXCEPT:
A. Value maximization
B. Speed of execution
C. Dilution
D. Certainty of completion
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
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
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
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
Which of the following choices is NOT a primary type of purchase consideration for a
target’s equity?
A. All-cash
B. Stock-for-Stock
C. Cash/stock mix
D. All-debt
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
Which of the following generally provides the highest valuation on a football field
graphic display?
A. DCF
B. LBO
C. Comparable companies analysis
D. Precedent transactions analysis
Which of the following buyers could potentially have limited access to the data room?
A. Direct competitor
B. Strategic buyer
C. Financial sponsor
D. All have equal access
A company’s capital expenditures can be found on all of the following forms EXCEPT:
A. 10-K
B. 8-K
C. Proxy Statement
D. 10-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
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. AcquirerCo’s share price closed at $30.00 a day
prior to the announcement.
A. $15.00
B. $35.00
C. $25.00
D. $20.00
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
Which financial metric can help indicate a company’s size?
A. ROIC
B. EV
C. DOL
D. FCF Yield
Which of the following is NOT included in calculating a company’s capitalization
ratio?
A. Debt
B. Preferred stock
C. Equity
D. EBITDA
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%
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 AcquirerCo’s 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
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
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
What marks the formal launch of the bidding process?
A. Drafting the CIM
B. The confidentiality agreement
C. Contacting prospective buyers
D. Receiving initial bids
Calculate the equity value in a fixed exchange ratio structure given the following
information.
Transaction Details:
TargetCo’s shareholders will receive one share of AcquirerCo’s common stock for
every four shares of TargetCo’s common stock. AcquirerCo’s 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
When is a merger accretive?
A. Acquirer’s pro forma EPS is lower
B. Target’s P/E is higher than acquirer’s
C. Acquirer’s P/E is lower than target’s
D. Acquirer’s P/E is higher than target’s
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
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
Which kind of buyer generally pays the most for an acquisition?
A. Financial buyer
B. Strategic buyer
C. Private equity
D. Financial sponsor
All of the following are disadvantages of which auction type?
Potential to “leave money on the table”
May afford buyers more leverage in negotiations
Lesser degree of competition
A. Broad auction
B. Targeted auction
C. Negotiated sale
D. Silent auction
