Accounting & Valuationby pwsJune 3, 2019April 21, 2020 Welcome to your Accounting and Valuation Primer exam. The exam consists of 20 multiple choice questions testing the content covered in your FSA and Valuation classes with Pillars of Wall Street. You will have 45 minutes to complete and submit the exam. You may use your laminated handouts, printed materials, or any notes that you have taken in class. You may not however use your neighbor, the internet, your cell phone, or any other device. If you have any questions, please ask your instructor, but know that he or she is not able to answer any question concerning the content of the exam. Please input your name, the name of your firm - Cantor Fitzgerald - and your email address. These results will be provided to Cantor Fitzgerald following your training. Good luck! Name Business Email 1. You are using your comparable company set to value Jimmy Jones & Co. The average EBITDA multiple of the comps is 7.0x. Jimmy Jones’ EBITDA is 200M, and their net debt is 50M. What is Jimmy Jones’ implied equity value? 200 1,350 1,400 1,4502. Which of the following when viewed in isolation will NOT increase LBO returns? Paying down debt Increasing CapEx Improving EBITDA margins Cutting costs3. If the 10 year government bond yield is 3.0%, levered beta is 1.2 and the market risk premium is 6.0%, what is the cost of equity? 8.2% 10.2% 12.2% 14.2%4. Which of the following is NOT a financing cash flow? Decrease in debt Increase in common stock Dividends Increase in prepaid expenses5. If Chip Capital acquired Laptop International for 10 billion, writing a 3 billion equity check, and upon exit 5 years later walked away with 7 billion in equity, what is Chip Capital’s IRR? 15% 18% 21% 27%6. If a company’s income statement doesn’t have lines for D&A, does that mean the company has no D&A? Yes No, the D&A could be buried in revenue No, the D&A could be buried in SG&A and/or COGS No, the D&A could be buried in interest income and/or interest expense7. Which of the following is FALSE about equity financing? Equity is typically riskier than debt Equity investors are focused on the upside Equity investors expect to earn a return via a fixed interest rate Equity investors expect to earn a return via capital appreciation and potentially dividends8. Which of the following is a relative valuation methodology? Discounted cash flow analysis Leveraged buyout analysis Comparable companies9. Calculate the enterprise value of Mary’s Mittens given the following information and table below: Mary’s Mittens has a WACC of 8.0%. Assume end of year convention for discounting of cash flows and terminal value. 111.8 250.0 282.0 393.010. Which of the following is NOT an operating cash flow? Increase in accounts receivable Decrease in inventory Net income CapEx11. If enterprise value is 750, debt is 250 and cash is 150, what is the equity value? 550 650 750 85012. The financial statement which reports revenues and expenses over time is the: Income statement Balance sheet Cash flow statement MD&A13. If EBIT is 300, the long term ETR is 40%, D&A is 75, capex is 45 and the decrease in OWC is 19, what is the free cash flow that year? 180 191 229 31914. Bubble Gum Co.’s operating profit is 5,000. It has a litigation charge of 1,000 in SG&A. D&A is 500. What is EBITDA? 4,000 4,500 5,500 6,50015. If the target capital structure of Larry’s Lollipops is 70.0% equity and 30.0% debt, the cost of equity is 15.0%, the cost of debt is 7.0%, and the MTR is 30.0%, what is the WACC? 9.0% 10.0% 11.0% 12.0%16. If you are projecting PP&E, and you know the beginning balance of PP&E is 800, the capital expenditures for the year are 200 and depreciation is 50, what is the ending PP&E balance? 550 650 950 1,05017. Using the operating working capital statistics for John’s Bakery below, calculate the days funding required or provided. Please specify whether funds are “used” (tied up) or “freed” (available).Accounts payable days: 25Inventory days: 15Accounts receivable days: 30 20 days freed up 20 days tied up 10 days freed up 10 days tied up18. If the enterprise value is 250, debt is 45, cash and cash equivalents is 40, goodwill is 10 and diluted shares outstanding is 100, what is the implied share price? 2.45 2.65 2.85 3.0519. If Bubble Gum Co. pays its employees salaries of $50M this year, what is the impact on the balance sheet this year? Cash decreases $50M, retained earnings increases $50M Cash decreases $50M, retained earnings decreases $50M Cash increases $50M, retained earnings increases $50M No impact20. If beginning retained earnings is 200, net income is 80 and ending retained earnings is 230, what are dividends? 50 150 230 310Time is Up!