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Managerial Finance Chapter 6 Stock Valuation Questions and Answers What is the primary role of a designated market maker (DMM)? Provide a two-sided market The voting procedure where you must control 50 percent plus one of the outstanding shares of stock to guarantee that you will win a seat on the board of directors is called _____ voting. Straight An agent who arranges security transactions among investors without maintaining an inventory of their own is called a: Broker ...

Balance Sheet, Accounts & Valuation Questions and Answers Balance Sheet was first created for Analyzing strengths and weaknesses in companies Current Ratio Current Assets / Current Liabilities; measure of liquidity Fair Value Amount that the security would sell for/be purchased for in a market that has willing and objective buyers and sellers Types of Long Term Assets 1. Investments 2. Plant and Equipment 3. Intangibles 4. Deferred Assets 5. Other Assets Defe...

Valuation Fundamentals Questions and Answers WACC Formula [Ke x E / (D+E)] + [ Kd x (1 - T) x D/ D + E)] Ke = cost of equity Kd = cost of debt E = market value of equity D = market value of debt T = marginal tax rate Cost of Equity / CAPM Ke = Rf + [β * (Rm - Rf)] Ke = cost of equity Rf = Risk-free rate β = Beta Rm = market rate of return Rm - Rf = market risk premium Ke = required annual rate of return that a company's equity investors expect to receive Ri...

Valuation Questions plus Answers What are the two ways to value a company? Intrinsic and Relative (two within each Transaction Comparables, Trading Comparables, DCF , LBO) What are the two types of intrinsic valuation Discounted Cash Flow (more respected in academia and more commonly used in IB) and Leveraged Buyout What are the two types of relative valuation 1. Compare similar transactions 2. compare similar companies walk me through transaction comps higher multiple...

Investment Banking - Valuation Questions and answers What are the 3 major valuation methodologies? Public comps, precedent transactions, and the DCF. Public comps and precedent transactions are examples of relative valuation, and the DCF is an example of intrinsic valuation. Can you walk me through how to use public comps and precedents transactions? First, you select the companies and transactions based on criteria such as industry, financial metrics, and geography. Then you determine...

Chapter 6 Commonly Used Methods of Valuation Questions and Answer The three general approaches that need to be considered by the valuation analyst in each valuation engagement include: a. Income, Asset Based, and Excess Earnings b. Market, Treasury, and Income c. Income, Going Concern, and Market d. Income, Asset Based, and Market D is Correct— Income, Asset Based and Market refer to the three general approaches to valuation which a valuation analyst must consider in each valuation eng...

Introduction to Property Valuation Questions and Answers Compounding It is important to understand compound interest in valuation mathematics. It is the effect of earning interest on top of interest already received. Compounding is like rolling a snowball; the bigger your snowball gets, the more snow it picks up as it rolls. It begins to increase in size at a faster rate. Compound Interest - Question: You put £1000 in a savings account that pays 5% interest per annum. At the end of t...

Valuation Questions (Corporate Finance Theory) Questions and Answers Could you explain the concept of present value? The present value concept is based on the premise that "a dollar in the present is worth more than a dollar in the future" due to the time value of money. The reason is that money currently in possession can earn interest by being invested today. How do you calculate present value? Present Value (t=0) = Cash Flow^t=1 / (1 + r)^t=1 How does the concept of PV ...

Valuation Questions & Answers Advanced How do you value banks and financial institutions differently from other companies? You mostly use the same methodologies, except: 1. You look at P / E and P / BV (Book Value) multiples rather than EV / Revenue, EV / EBITDA, and other "normal" multiples, since banks have unique capital structures. 2. You pay more attention to bank-specific metrics like NAV (Net Asset Value) and you might screen companies and precedent transactions based on those i...

Valuation Questions & Answers Basic What are the 3 major valuation methodologies? Comparable Companies, Precedent Transactions and Discounted Cash Flow Analysis. Rank the 3 valuation methodologies from highest to lowest expected value. In general, Precedent Transactions will be higher than Comparable Companies due to the Control Premium built into acquisitions. Beyond that, a DCF could go either way and it's best to say that it's more variable than other methodologies. Often i...