Wall Street Prep Premium Exam Questions and Answers 2023

Wall Street Prep Premium Exam Questions and Answers • 2014 Inventories of $800 million • 2013 Accounts payable of $250 million • 2014 Accounts payable of $300 million What are the inventory days for the company?: 65.7 days 10. Which of the following is true: Coca Cola's brand name is not reflected as an intangible asset on its balance sheet 11. A company has the following information: • 2014 share repurchase plan of $4 billion • Average share price of $60 for the year 2013 • Expected EPS growth for 2014 of 10% What should the number of shares repurchased by the company be in your financial model?: 60.6 million 12. non-controlling interest: is an expense on the income statement and equity o the balance sheet 13. A company has the following information: • 2013 retained earnings balance of $12 billion • Net income of $3.5 billion in 2014 • Capex of $200 million in 2014 • Preferred dividends of $100 million in 2014 • Common dividends of $400 million in 2014 What is the retained earnings balance at the end of 2014?: 15 billion 14. in order to find out how much cash is available to pay down short term debt, such as revolving credit line, you must take: beginning cash balance + pre-debt cash flows - min. cash balance - required principal payments of LT and other debt 15. to calculate interest expense in the future, you should do which of the following: apply a weighted average interest rate times the average debt balance over the course of the year 16. enterprise (transaction) value represents the:: value of all capital invested in a business 17. A debt holder would be primarily concerned with which of the following multiples? I. Enterprise (Transaction) Value / EBITDA II. Price/Earnings III. Enterprise (Transaction) Value / Sales: 1 and 3 only 18. On January 1, 2014, 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 through 2020 as follows: Year 2014 2015 2016 2017 2018 2019 2020 Free Cash Flow 110 120 150 170 200 250 280 You estimate that the weighted average cost of capital (WACC) for Company X is 10% and assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year. Estimate the present value of the projected free cash flows through 2020, discounted at the stated WACC. Assume all cash flows are generated at the end of the year (i.e., no mid-year adjustment):: 837 million 19. On January 1, 2014, 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 through 2014 as follows: Year 2014 2015 2016 2017 2018 2019 2020 Free Cash Flow 110 120 150 170 200 250 280 You estimate that the weighted average cost of capital (WACC) for Company X is 10% and assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year. Calculate Company X's implied Enterprise Value by using the discounted cash flow method:: 2951.2 million 20. On January 1, 2014, 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 through 2014 as follows: Year 2014 2015 2016 2017 2018 2019 2020 Free Cash Flow 110 120 150 170 200 250 280 You estimate that the weighted average cost of capital (WACC) for Company X is 10% and assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year. According to the discounted cash flow valuation method, Company X shares are:: .13 per share overvalued 21. the formula for discounting any specific period cash flow in period "t"is:- : cash flow from period "t" divided by (1+discount rate raised exponentially to "t" 22. the terminal value of a business that grows indefinitely is calculated as follows: cash flow from period "t+1" divided by (discount rate-growth rate) 23. the two-stage DCF model is:: where stage 1 is an explicit projection of free cash flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows beyond the explicit forecast period 24. disadvantages of a DCF do not include: free cash flows over the first 5-10 year period represent a significant portion of value and are highly sensitive to valuation assumptions 25. the typical sell-side process: shorter than the buy side, buyer secures financ- ing, and doesn't involve id'ing potential issues to address such as ownership and unusual equity structures, liabilities, etc. 26. the following happened in a recent M&A transaction: 1. PP&E of the target company was increased from its original book basis of $600 million to $800 million to reflect fair market value for book purposes in accordance with the purchase method of accounting. 2. no "stepup" for tax purposes. 3. original tax basis of $650 million. assuming a corporate tax rate of 35% for book purposes, the company should record the following: A deferred tax liability equal to $52.5 million 27. An acquisition creates shareholder value:: when a company acquires a business whose fundamental value is higher than the purchase price 28. • Acquirer purchases 100% of target by issuing additional stock to pur- chase target shares • No premium is offered to the current target share price • Acquirer share price at announcement is $30 • Target share price at announcement is $50 • Acquirer EPS next year is $3.00 • Target EPS next year is $2.00 • Acquirer has 4 thousand shares outstanding • Target has 2 thousand shares outstanding What is the exchange ratio for the deal?: 1.7x 29. • Acquirer purchases 100% of target by issuing additional stock to pur- chase target shares • No premium is offered to the current target share price • Acquirer share price at announcement is $30 • Target share price at announcement is $50 • Acquirer EPS next year is $3.00 • Target EPS next year is $2.00 • Acquirer has 4 thousand shares outstanding • Target has 2 thousand shares outstanding Assuming a 40% tax rate, what are the necessary pre-tax synergies needed to break-even?: 30. Pushdown accounting:: Refers to the establishment of a new accounting and reporting basis in an acquired company's separate financial statements 31. Use the following information to answer the question below:• Acquirer purchases 100% of target by issuing $100 million in new debt to purchase target shares, carrying an interest rate of 10% • Excess cash is used to help pay for the acquisition • Acquirer expects to be able to close down several of the target company's old manufacturing facilities and save an estimated $2 million in the first year • Target PP&E is written up by $25 million to fair market value • Investment bankers, accountants, and consultants on the deal earned $30 million in fees Which of the following adjustments would be made to the pro forma income statement?: Advisory fee expense of $30 million Depreciation expense increase due to PP&E write-up Pre-tax synergies of $2 million 32. Use the following information to answer the question below: • Acquisition takes place on July 1, 2013 • Acquirer FYE - June 30 • Target FYE - December 31 • Acquirer expected EPS for FYE June 2014 is $2.40 • Target consensus EPS for FYE Dec 2013 is $1.12 • Target consensus EPS for FYE Dec 2014 is $1.78 Assuming 360 days in a year for simplicity, calculate target EPS adjusted to acquirer FYE in the transaction year (FYE June 2014): $1.45 33. A 338(h)(10) election:: Requires that both buyer and seller must jointly elect to have the IRS deem the acquisition an asset sale for tax purposes 34. A good LBO candidate has which of the following characteristics?: Little to no existing leverage, steady cash flows and little investment in business through capex and working capital 35. Which of the following is NOT a disadvantage of performing an LBO analysis?: Standalone LBO may overestimate strategic sale value by ignoring synergies with acquirer 36. While equity contribution went as low as the single digits in the 1980's, the current split between equity and debt in an LBO deal is best characterized as:: Equity - 35%; Debt 65%