Private Equity : Lecture 2
42 Questions
11 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Which method can be used to obtain a 'ballpark' valuation for a firm?

  • Comparables (correct)
  • DCF
  • Growth rate analysis
  • Risk assessment

    • What is the market value of Danone if it exhibits $35,740,000,000 of sales?

  • $35,740,000
  • $357,400,000,000 (correct)
  • $35,740,000,000
  • $3,574,000,000

    • What are the common ratios used in public markets for valuation?

  • Share price ratio, market value ratio, revenue ratio
  • Share price ratio, market value ratio, earnings ratio
  • P-E ratio, market-to-book ratio, revenue ratio (correct)
  • P-E ratio, market-to-book ratio, earnings ratio

    • What is Step 1 in the comparables valuation method?

    <p>Identify firms with similar characteristics</p> Signup and view all the answers

    What is Step 2 in the comparables valuation method?

    <p>Identify ratios</p> Signup and view all the answers

    What is Step 3 in the comparables valuation method?

    <p>Multiply</p> Signup and view all the answers

    What does DCF stand for in valuation?

    <p>Discounted Cash Flow</p> Signup and view all the answers

    What is one of the caveats of using the DCF method for valuing start-ups?

    <p>Lack of comparables</p> Signup and view all the answers

    What is one of the caveats of using the comparables method for valuing start-ups?

    <p>Lack of comparables</p> Signup and view all the answers

    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?

    <p>The average of General Motors' and VW's market values</p> Signup and view all the answers

    Which of the following is a non-financial, industry-specific measure of value?

    <p>Number of subscribers enrolled by a firm</p> Signup and view all the answers

    What is the average value for Chipgen according to the given information?

    <p>67.7 m</p> Signup and view all the answers

    What is the proper discount for liquidity when valuing shares in private firms?

    <p>Between 25% and 30%</p> Signup and view all the answers

    What is the formula for computing discounted cash flows (DCF)?

    <p>DCF = CF0 + CF1 / (1 + r)1 + CF2 / (1 + r)2 + ... + CFT / (1 + r)T</p> Signup and view all the answers

    Which of the following is NOT included in the computation of cash flows (CF)?

    <p>Earnings before interest and tax (EBIT)</p> Signup and view all the answers

    Why is it necessary to correct for depreciation (DEPR) in cash flow computations?

    <p>To accurately reflect the costs included in financial statements</p> Signup and view all the answers

    Why is it necessary to correct for the increase in net working capital (ΔNWC) in cash flow computations?

    <p>To accurately reflect the changes in working capital</p> Signup and view all the answers

    What is the expected growth rate of cash flows after 2019 for Jersey Inc.?

    <p>5%</p> Signup and view all the answers

    What is the total debt interest payments in 2017, 2018, and 2019 for Jersey Inc.?

    <p>$10 million</p> Signup and view all the answers

    What is the value of EBIT in 2018 for Jersey Inc.?

    <p>$102.5 million</p> Signup and view all the answers

    Which formula is used to calculate the terminal value (TV) at time T using the perpetuity method?

    <p>$TV_T = [CF_T * (1 + g)] / (r - g)$</p> Signup and view all the answers

    Which formula is used to calculate the discount rate (r) using the Weighted Average Cost of Capital (WACC) formula?

    <p>$r = (D / V) * r_d * (1- τ) + (E / V) * r_e$</p> Signup and view all the answers

    What is the formula for calculating the expected rate of return on equity using the Capital Asset Pricing Model (CAPM)?

    <p>$E(r_e) = r_f + β * [E(r_m) - r_f]$</p> Signup and view all the answers

    What is the formula for calculating the Net Present Value (NPV) using the Discounted Cash-Flow (DCF) method?

    <p>$DCF = CF_0 + [CF_1 / (1 + r)] + ...+ [(CF_T + TV_T) / (1 + r)^T]$</p> Signup and view all the answers

    What is the formula for unlevering the beta (β)?

    <p>$β_u = β_L * [E / (E + D)]$</p> Signup and view all the answers

    What is the formula for relevering the beta (β)?

    <p>$β' = β_u / [E' / (E' + D')]$</p> Signup and view all the answers

    What are some drawbacks of the Discounted Cash-Flow (DCF) method?

    <p>Lack of comparable companies, terminal value sensitivity, and beta as the proper measure of firm risk</p> Signup and view all the answers

    What is the risk-free rate used in the Capital Asset Pricing Model (CAPM)?

    <p>8%</p> Signup and view all the answers

    Which formula is used to calculate the terminal value (TV) at time T using the perpetuity method?

    <p>$TV_T = [CF_T * (1 + g)] / (r - g)$</p> Signup and view all the answers

    What is the formula for calculating the discount rate (r) using the Weighted Average Cost of Capital (WACC) formula?

    <p>$r = (D / V) * r_d * (1 - \tau) + (E / V) * r_e$</p> Signup and view all the answers

    What is the formula for calculating the expected rate of return on equity (E(r_e)) using the Capital Asset Pricing Model (CAPM)?

    <p>$E(r_e) = r_f + \beta * [E(r_m) - r_f]$</p> Signup and view all the answers

    What is the formula for calculating the Net Present Value (NPV) using the Discounted Cash Flow (DCF) method?

    <p>$DCF = CF_0 + [CF_1 / (1 + r)] + \ldots + [(CF_T + TV_T) / (1 + r)^T]$</p> Signup and view all the answers

    What is the formula for unlevering beta (βu)?

    <p>$\betau = \betaL * [E / (E + D)]$</p> Signup and view all the answers

    What is the formula for relevering beta (β')?

    <p>$\beta' = \betau / [E' / (E' + D')]$</p> Signup and view all the answers

    What is one of the drawbacks of using the DCF method for valuation?

    <p>Lack of comparable companies</p> Signup and view all the answers

    What is one of the drawbacks of using the DCF method for valuation?

    <p>Terminal value sensitivity</p> Signup and view all the answers

    Which formula is used to calculate the terminal value (TV) at time T using the perpetuity method?

    <p>$TV_T = \left[ CF_T \times (1 + g) \right] / (r - g)$</p> Signup and view all the answers

    What is Step 3 in the comparables valuation method?

    <p>Determine the Discount Rate using the Weighted Average Cost of Capital (WACC) formula</p> Signup and view all the answers

    What is the formula for computing discounted cash flows (DCF)?

    <p>$DCF = CF_0 + [CF_1 / (1 + r)] + ...+ [(CF_T + TV_T) / (1 + r)^T]$</p> Signup and view all the answers

    What is the formula for calculating the Net Present Value (NPV) using the Discounted Cash-Flow (DCF) method?

    <p>$NPV = CF_0 + [CF_1 / (1 + r)] + ...+ [(CF_T + TV_T) / (1 + r)^T]$</p> Signup and view all the answers

    What is the formula for unlevering the beta (β)?

    <p>$β_u = β_L \times \left[ \frac{E},{E + D} \right]$</p> Signup and view all the answers

    What is the formula for relevering the beta (β)?

    <p>$β' = β_u / \left[ \frac{E'},{E' + D'} \right]$</p> Signup and view all the answers

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser