1. Which of the following items should NOT be projected as a percentage of revenue?
A. Accounts Receivable
B. Accrued Expenses
C. Inventory
D. Capital Expenditures
2. Which of the following is NOT correct?
A. Operating assets are usually all assets except for cash and investment assets.
B. Operating liabilities are usually all liabilities except for debt and debt-like liabilities.
C. Enterprise value + net debt = equity value.
D. Rather than treating cash as an operating asset, it is netted against debt to get net debt.
3. Which of the following in NOT an accurate statement?
A. Enterprise Value is the value of the operating business.
B. Enterprise Value equals operating assets minus operating liabilities.
C. Operating assets are usually all assets except for cash and investments.
D. Operating liabilities are usually all liabilities except for debt & debt-like liabilities.
E. Cash is always treated as an operating asset and is added to debt to get a net debt amount.
4. Google has an equity book value of $87B per the company's latest 10-Q. Google shares trade at $535. Google has 678MM shares outstanding. Google also has $59B in cash, $5B in debt.
A. Google's equity market value (market cap) is approximately $465B.
B. Google's enterprise value is approximately $417B.
C. Google's enterprise value is approximately $309B.
D. Google's equity market value (market cap) is approximately $401B.
5. Two frameworks used for valuation are intrinsic valuation - perpetuity method (DCF) and relative valuation - Exit EBITDA Multiple method - (Comps). Which of the following statements is not correct.
A. DCF is derived from the fundamental analysis of the company's cash flow generation potential.
B. Relative valuation is derived by comparing a company to its comparable peers.
C. In comps, values are typically compared relative to a measure of the firm's profitability. These ratios are called "multiples".
D. Because the DCF model rarely yields the same value as the Comps model, the DCF model is viewed as having less value when analyzing a firm.
6. The prevalent form of the DCF model in practice is the two-stage "unlevered DCF model". Which of the following statements is not correct?
A. Stage #1 projects unlevered FCFs using mid-year assumptions for calculating the present value of periodic cash flows.
B. Stage #1 forecast period is typically 5-10 years.
C. Stage #2 calculates the terminal value by estimating the value of the company at the end of stage #1 then discounting it to the present.
D. All cash flows are discounted using the weighted average cost of capital (WACC).
E. The enterprise value will equal Stage #1 minus Stage #2.
7. Which of the following statements is false when discussing valuation methodology?
A. Because the terminal value is a long-term projection, it has minimal impact on the final valuation of the firm.
B. Unlevered free cash flows are annual cash flows freely available to all providers of capital in the business, after accounting for all necessary reinvestments.
C. Terminal values can be determined using DCF or Exit Multiples
D. The cost of equity requires data on betas, market equity risk premiums and the risk free rate of return.
8. Which of the following would be least likely to factor in when calculating Enterprise Value?
A. The value of Net Operating Losses
B. Equity investments
C. Short-term borrowings
D. Capital leases
9. There are two main valuation types: relative (based on what other companies are worth) and intrinsic (based on how much cash flow the company generates). Which of the following choices is an example of INTRINSIC valuation?
A. Discounted Cash Flow (DCF)
B. Public Company Comparables
C. Leveraged Buyout (LBO) Model
D. Precedent Transactions
10. What is the MAIN difference between Levered Free Cash Flow and Unlevered Free Cash Flow in a DCF analysis?
A. Unlike Unlevered FCF, with Levered FCF you do not add back Depreciation or other non-cash charges because the formula starts with Net Income.
B. Levered FCF includes the effects of cash and debt, while Unlevered FCF excludes the effects of financing decisions.
C. In a DCF, using Levered FCF results in Enterprise Value while using Unlevered FCF for the calculations results in Equity Value.
D. Unlike Levered FCF, Unlevered FCF is pre-tax because the formula begins with Operating Income (or EBIT).
11. You are planning to create a DCF analysis using Unlevered Free Cash Flow and the Multiples Method for Terminal Value. You also have a 5-year 3-statement projection model for the company you're analyzing. Aside from the appropriate discount rate, you have all of the financial information necessary to complete a DCF analysis.
A. TRUE
B. FALSE
12. At a WACC (discount rate) of 20%, what is the net present value of the cash flows shown below?
|
Discount Period
|
1.0
|
2.0
|
3.0
|
4.0
|
5.0
|
|
Unlevered Free Cash Flow
|
$15
|
$20
|
$30
|
$25
|
$35
|
A. $77
B. $64
C. $76
D. $70
13. Market beta is a statistical coefficient that reflects a company's historical stock price volatility relative to:
A. All securities in the market
B. Risk-free government bonds
C. All industry competitors in the world
D. All firms of comparable market value.
14. The Capital Asset Pricing Model states that the expected return on a particular asset relates to all of the following components except:
A. The beta risk
B. The market risk premium
C. The risk-free rate
D. The alpha risk
15. Google has a market beta of 1.16, if the market increases by 1.4% on a given day we would expect that Google's stock price would:
A. Increase by 1.62%
B. Increase by 1.39%
C. Decrease by 1.86%
D. Increase by 2.36%
16. A company has Terminal Year Unlevered Free Cash Flow of $100. You expect this cash flow to grow at 2% in perpetuity, and the company's WACC is 14%. Using the Perpetual Growth Method, what is this company's Terminal Value?
A. $867
B. $833
C. $850
D. $729
Use the following information to answer questions 17,18,19
On January 1, 2016, shares of Company X trade at $6.50 per share, with 400 million shares outstanding. The company has net debt of $300 million. After building an earnings model for Company X, you have projected free cash flow for each year as follows:
|
Year
|
2016
|
2017
|
2018
|
2019
|
2020
|
2021
|
2022
|
|
FCF
|
110
|
120
|
150
|
170
|
200
|
250
|
280
|
|
Weighted average cost of capital
|
10%
|
|
Long-term FCF growth rate
|
3%
|
17. Estimate the present value of the projected free cash flows through 2022, discounted at the stated WACC.
Assume all cash flows are generated at the end of the year ( i.e., no mid-year adjustment):
A. $624.1 million
B. $693.3 million
C. $837.0 million
D. $1,117.8 million
18. Calculate Company X's implied Enterprise Value by using the discounted cash flow method:
A. $2,759.0 million
B. $2,807.5 million
C. $2,951.2 million
D. $3,232.0 million
19. According to the discounted cash flow valuation method, Company X shares are:
A. $0.13 per share undervalued
B. $0.23 per share overvalued
C. $0.83 per share overvalued
D. $0.83 per share undervalued