ADVENTIS FMC LEVEL 2 REVISED
QESTIONS WITH VERIFIED ANSWERS
[GUARANTEED A+ GRADE]
what is value - Correct Answers -what people are willing to pay for (what the buyer pays)
who said, "Value is what people are willing to pay for" - Correct Answers -John Naisbitt
2 primary types of valuation - Correct Answers -1. relative valuation
2. intrinsic valuation
relative valuation refers to what - Correct Answers -methods that compare the price of a
company to the market value of similar assets
intrinsic value refers to what - Correct Answers -the value of a company through fundamental
analysis without reference to its market value but instead around its ability to generate cash
flow
in an M&A context, what is EV - Correct Answers -transaction value
in an M&A context, what is equity value - Correct Answers -purchase price
a company sold for $100M and the company being bought had $15M of debt and $2M of cash,
what happens and what is the transaction value and purchase price - Correct Answers -- the
$2M would be used by shareholders of the acquired company to pay down existing $15M in
debt to make $13M in debt now (15 - 2 = 13)
- the proceeds from the deal would then be used to pay down the remaining debt (EV = CS + PS
+ Debt - Cash)
- Result is 100 - 13 = 87
, - TV = $100M
- Purchase price = $87 (check to shareholders of acquired company)
2 primary types of relative valuation - Correct Answers -1. comparable company analysis
2. acquisition comparables analysis
comparable companies analyses (public trading comparables analyses) - Correct Answers --
most common types of relative valuation
- these methods allow investors to compare valuation of similar companies by comparing
similar ratios
most common public trading comparable ratios - Correct Answers -1. EV/EBITDA
2. EV/Revenue
3. Net income/Earnings (share price/earnings per share)
assume a company has $5M of EBITDA and two public companies most similar to the company
trade at 6.0x and 7.0x EBITDA, what might you conclude - Correct Answers -- Ex: 7.0 = x/5 ; 6.0 =
x/5
- can conclude that EV for the company should be between 30-35 million
what happens when a company trades at a multiple that is a premium or a discount to the
industry average - Correct Answers -investors will dig in to understand the rationale
assume that a company trades at 7.0x EBITDA but the average of comparable companies is 9.0x,
what can we conclude - Correct Answers -the company is being undervalued and the investor
will look to buy shares because he realizes that the share price will increase Wall St. begins to
value the company in-line with its peers
QESTIONS WITH VERIFIED ANSWERS
[GUARANTEED A+ GRADE]
what is value - Correct Answers -what people are willing to pay for (what the buyer pays)
who said, "Value is what people are willing to pay for" - Correct Answers -John Naisbitt
2 primary types of valuation - Correct Answers -1. relative valuation
2. intrinsic valuation
relative valuation refers to what - Correct Answers -methods that compare the price of a
company to the market value of similar assets
intrinsic value refers to what - Correct Answers -the value of a company through fundamental
analysis without reference to its market value but instead around its ability to generate cash
flow
in an M&A context, what is EV - Correct Answers -transaction value
in an M&A context, what is equity value - Correct Answers -purchase price
a company sold for $100M and the company being bought had $15M of debt and $2M of cash,
what happens and what is the transaction value and purchase price - Correct Answers -- the
$2M would be used by shareholders of the acquired company to pay down existing $15M in
debt to make $13M in debt now (15 - 2 = 13)
- the proceeds from the deal would then be used to pay down the remaining debt (EV = CS + PS
+ Debt - Cash)
- Result is 100 - 13 = 87
, - TV = $100M
- Purchase price = $87 (check to shareholders of acquired company)
2 primary types of relative valuation - Correct Answers -1. comparable company analysis
2. acquisition comparables analysis
comparable companies analyses (public trading comparables analyses) - Correct Answers --
most common types of relative valuation
- these methods allow investors to compare valuation of similar companies by comparing
similar ratios
most common public trading comparable ratios - Correct Answers -1. EV/EBITDA
2. EV/Revenue
3. Net income/Earnings (share price/earnings per share)
assume a company has $5M of EBITDA and two public companies most similar to the company
trade at 6.0x and 7.0x EBITDA, what might you conclude - Correct Answers -- Ex: 7.0 = x/5 ; 6.0 =
x/5
- can conclude that EV for the company should be between 30-35 million
what happens when a company trades at a multiple that is a premium or a discount to the
industry average - Correct Answers -investors will dig in to understand the rationale
assume that a company trades at 7.0x EBITDA but the average of comparable companies is 9.0x,
what can we conclude - Correct Answers -the company is being undervalued and the investor
will look to buy shares because he realizes that the share price will increase Wall St. begins to
value the company in-line with its peers
