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Which document has the purchase price details as well as the exact date and guidelines
for an M&A process?
A. CIM
B. Bid procedures letter
C. Confidentiality agreement
D. Final bid procedures letter
Given the following information, calculate the cash available for debt repayment when
building a post-LBO model.
Details:
Cash flow from investing activities: $30.0
EBIT: $65
Cash flow from operating activities: $120.0
D&A: $35
A. $100.0
B. $30.0
C. $90.0
D. $150.0
In an M&A transaction, when is a tender offer made to the public shareholders?
A. Stock sale
B. One-step transaction
C. Two-step tender process
D. Asset sale
Calculate the internal rate of return for a $300.0m cash outflow at the end of year 0 and
a $716.0m cash inflow at the end of year 5.
A. 16%
B. 20%
C. 18.5%
D. 19%
An ABL facility is generally secured by a first priority lien on which of the following
assets?
A. PP&E
B. Deferred tax asset
C. Inventory
D. Goodwill
When there are limited (or no) pure play peer companies, which valuation method
should be used?
A. Comparable companies analysis
B. Precedent transaction analysis
C. Vertical analysis
D. Discounted cash flow analysis
Which type of auction should be used when speed of execution is a priority?
A. Broad auction
B. Targeted auction
C. Negotiated sale
D. Both B and C
What is inventory divided by to obtain DIH?
A. COGS
B. Sales
C. Accounts Receivable
D. Gross Profit
A target was purchased for $1,500.0m with an equity contribution of $500.0m, and by
year 5 $500.0m of cash flow was used to repay debt. Assuming the sponsor sells the
target for the enterprise value, what is the value of the sponsor’s equity?
A. $1,500.0m
B. $1,000.0m
C. $500.0m
D. $2,000.0m
In which calculation is the exit multiple method or the perpetuity growth method used?
A. Present value
B. Terminal value
C. WACC
D. FCF
Given the following information, calculate the cash that will flow to the balance sheet,
assuming a 100% cash flow sweep.
Details:
Free Cash Flow: $65.0m
TLB amortization: $5.0m
Optional debt repayment: $70.0m
A. $60.0m
B. $70.0m
C. $65.0m
D. $0.0
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
Given the following details, what is the difference in seller net proceeds between the
asset sale and the stock sale?
Details:
Corporate tax rate: 38%
Capital gains rate: 20%
Stock Sale:
Purchase price: $4,000.0m
Stock basis: $1,000.0m
Asset Sale:
Purchase price: $4,000.0m
Asset basis: $1,000.0m
A. $1,520.0m
B. $912.0m
C. $372.0m
D. $518.0m
Which of the following forms of financing tends to be the least flexible?
A. Bank debt
B. Mezzanine debt
C. Equity contribution
D. High yield bonds
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
For day-to-day execution in an M&A process, appointed member(s) of the investment
banking advisory team communicate(s) with:
A. A point person
B. The CEO
C. Investor relations
D. The CFO
Which of the following should be one of the first documents presented to a potential
buyer?
A. Confidentiality agreement
B. Teaser
C. Bid procedures letter
D. None of the above
Calculate the discount factor for $1.00 received at the end of one year, assuming a 12%
discount rate.
A. .80
B. .95
C. .87
D. .89
Calculate implied enterprise value given the following details.
Details:
Offer price per share: $20.0
Fully diluted shares outstanding:
100
Total debt: $200.0
Cash: $100.0
A. $2,000
B. $1,900
C. $2,100
D. $1,700
When building a debt schedule, what are interest rates typically based on for
floating-rate debt instruments?
A. Federal funds rate
B. 3 year treasury yields
C. Required rate of return
D. LIBOR
A ratio that defines how many shares of the acquirer’s stock are exchanged for each
share of the target’s stock is referred to as a:
A. Fixed exchange ratio
B. Secure exchange ratio
C. Floating exchange ratio
D. Stock-for-stock ratio
In many instances, growth through acquisition is _________ than building a new
business from scratch.
A. Cheaper
B. More time consuming
C. Faster
D. Both A and C
What is a key credit risk management concern for underwriters in an LBO?
A. Ability to pay annual interest expense
B. Ability to repay a substantial portion of bank debt
C. Optimal financing structure
D. All of the above
A feature in the high yield market that allows the issuer to pay interest in the form of
additional notes is called a:
A. Bridge loan
B. First lien
C. PIK
D. Term B loan
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
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%
If an LBO target does not repay any debt during the investment horizon, how can the
sponsor still realize a return?
A. If the target reinvests its cash into the business, the sponsor can realize a return by
selling the target at a higher enterprise value
B. The sponsor cannot realize a return, as the enterprise value did not increase
C. The sponsor cannot realize a return, as the value of the sponsor’s equity could not
increase
D. It depends on the sponsor’s internal rate of return
The confidentiality agreement includes provisions for all of the following EXCEPT:
A. Restrictions on financing
B. Standstill agreement
C. Permitted disclosure
D. Restrictions on clubbing
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.
Which section of the Internal Revenue Code allows an acquirer to treat the purchase of
the target’s stock as an asset sale for tax purposes?
A. Section 225 election
B. Section 338
C. Section 338(h)(10) election
D. There is no such revenue code
How does a decrease net working capital affect FCF?
A. Overstates FCF
B. Does not affect FCF
C. Understates FCF
D. It depends
Calculate the equity value for a public target in a precedent transactions analysis given
the following information.
Details:
Share price: $20.00
Acquirer’s offer price per share: $40.00
Fully diluted shares outstanding: 100.00mm
A. $200.00mm
B. $400.00mm
C. $150.00mm
D. $250.00mm
