42 Questions
Which method can be used to obtain a 'ballpark' valuation for a firm?
Comparables
What is the market value of Danone if it exhibits $35,740,000,000 of sales?
$357,400,000,000
What are the common ratios used in public markets for valuation?
P-E ratio, market-to-book ratio, revenue ratio
What is Step 1 in the comparables valuation method?
Identify firms with similar characteristics
What is Step 2 in the comparables valuation method?
Identify ratios
What is Step 3 in the comparables valuation method?
Multiply
What does DCF stand for in valuation?
Discounted Cash Flow
What is one of the caveats of using the DCF method for valuing start-ups?
Lack of comparables
What is one of the caveats of using the comparables method for valuing start-ups?
Lack of comparables
What is the implied market value of equity of Ford if the Price Earnings Ratio of (General Motors + VW)/2 is used and Ford's earnings are given?
The average of General Motors' and VW's market values
Which of the following is a non-financial, industry-specific measure of value?
Number of subscribers enrolled by a firm
What is the average value for Chipgen according to the given information?
67.7 m
What is the proper discount for liquidity when valuing shares in private firms?
Between 25% and 30%
What is the formula for computing discounted cash flows (DCF)?
DCF = CF0 + CF1 / (1 + r)1 + CF2 / (1 + r)2 + ... + CFT / (1 + r)T
Which of the following is NOT included in the computation of cash flows (CF)?
Earnings before interest and tax (EBIT)
Why is it necessary to correct for depreciation (DEPR) in cash flow computations?
To accurately reflect the costs included in financial statements
Why is it necessary to correct for the increase in net working capital (ΔNWC) in cash flow computations?
To accurately reflect the changes in working capital
What is the expected growth rate of cash flows after 2019 for Jersey Inc.?
5%
What is the total debt interest payments in 2017, 2018, and 2019 for Jersey Inc.?
$10 million
What is the value of EBIT in 2018 for Jersey Inc.?
$102.5 million
Which formula is used to calculate the terminal value (TV) at time T using the perpetuity method?
$TV_T = [CF_T * (1 + g)] / (r - g)$
Which formula is used to calculate the discount rate (r) using the Weighted Average Cost of Capital (WACC) formula?
$r = (D / V) * r_d * (1- τ) + (E / V) * r_e$
What is the formula for calculating the expected rate of return on equity using the Capital Asset Pricing Model (CAPM)?
$E(r_e) = r_f + β * [E(r_m) - r_f]$
What is the formula for calculating the Net Present Value (NPV) using the Discounted Cash-Flow (DCF) method?
$DCF = CF_0 + [CF_1 / (1 + r)] + ...+ [(CF_T + TV_T) / (1 + r)^T]$
What is the formula for unlevering the beta (β)?
$β_u = β_L * [E / (E + D)]$
What is the formula for relevering the beta (β)?
$β' = β_u / [E' / (E' + D')]$
What are some drawbacks of the Discounted Cash-Flow (DCF) method?
Lack of comparable companies, terminal value sensitivity, and beta as the proper measure of firm risk
What is the risk-free rate used in the Capital Asset Pricing Model (CAPM)?
8%
Which formula is used to calculate the terminal value (TV) at time T using the perpetuity method?
$TV_T = [CF_T * (1 + g)] / (r - g)$
What is the formula for calculating the discount rate (r) using the Weighted Average Cost of Capital (WACC) formula?
$r = (D / V) * r_d * (1 - \tau) + (E / V) * r_e$
What is the formula for calculating the expected rate of return on equity (E(r_e)) using the Capital Asset Pricing Model (CAPM)?
$E(r_e) = r_f + \beta * [E(r_m) - r_f]$
What is the formula for calculating the Net Present Value (NPV) using the Discounted Cash Flow (DCF) method?
$DCF = CF_0 + [CF_1 / (1 + r)] + \ldots + [(CF_T + TV_T) / (1 + r)^T]$
What is the formula for unlevering beta (βu)?
$\betau = \betaL * [E / (E + D)]$
What is the formula for relevering beta (β')?
$\beta' = \betau / [E' / (E' + D')]$
What is one of the drawbacks of using the DCF method for valuation?
Lack of comparable companies
What is one of the drawbacks of using the DCF method for valuation?
Terminal value sensitivity
Which formula is used to calculate the terminal value (TV) at time T using the perpetuity method?
$TV_T = \left[ CF_T \times (1 + g) \right] / (r - g)$
What is Step 3 in the comparables valuation method?
Determine the Discount Rate using the Weighted Average Cost of Capital (WACC) formula
What is the formula for computing discounted cash flows (DCF)?
$DCF = CF_0 + [CF_1 / (1 + r)] + ...+ [(CF_T + TV_T) / (1 + r)^T]$
What is the formula for calculating the Net Present Value (NPV) using the Discounted Cash-Flow (DCF) method?
$NPV = CF_0 + [CF_1 / (1 + r)] + ...+ [(CF_T + TV_T) / (1 + r)^T]$
What is the formula for unlevering the beta (β)?
$β_u = β_L \times \left[ \frac{E},{E + D} \right]$
What is the formula for relevering the beta (β)?
$β' = β_u / \left[ \frac{E'},{E' + D'} \right]$
Test your knowledge on valuation methods and ratios used in the financial industry. Questions cover topics such as obtaining a 'ballpark' valuation for a firm, using common ratios for valuation in public markets, and steps involved in the comparables valuation method.
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