Accounting & Valuationby pwsJune 3, 2019April 21, 2020 Welcome to your Accounting and Valuation Primer exam. The assessment consists of 20 questions testing the content covered in your classes with Pillars of Wall Street. You may use your notes and a calculator to assist you in the exam. Once you begin your assessment, you will not be able to pause your exam for any reason, therefore, please take care of any outside activities that require your time prior to beginning the assessment. If you close the webpage while taking the exam, your results will not save. If you have poor internet connection, we encourage you to write your answers on paper as you go. Please input your name, your firm code (BAML2021), and your email address. If you have any questions, please contact your instructor. Good luck! Name Business Email 1. The financial statement which reports revenues and expenses over time is the:Income statementBalance sheetCash flow statementMD&A 2. 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?4,0004,5005,5006,500 3. Which of the following is FALSE about equity financing?Equity is typically riskier than debtEquity investors are focused on the upsideEquity investors expect to earn a return via a fixed interest rateEquity investors expect to earn a return via capital appreciation and potentially dividends 4. 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 $50MCash decreases $50M, retained earnings decreases $50MCash increases $50M, retained earnings increases $50MNo impact 5. 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: 3020 days freed up20 days tied up10 days freed up10 days tied up 6. 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?5506509501,050 7. If a company’s income statement doesn’t have lines for D&A, does that mean the company has no D&A?YesNo, the D&A could be buried in revenueNo, the D&A could be buried in SG&A and/or COGSNo, the D&A could be buried in interest income and/or interest expense 8. If beginning retained earnings is 200, net income is 80 and ending retained earnings is 230, what are dividends?50150230310 9. Which of the following is NOT an operating cash flow?Increase in accounts receivableDecrease in inventoryNet incomeCapEx 10. Which of the following is NOT a financing cash flow?Decrease in debtIncrease in common stockDividendsIncrease in prepaid expenses 11. Which of the following is a relative valuation methodology?Discounted cash flow analysisLeveraged buyout analysisComparable companies 12. If enterprise value is 750, debt is 250 and cash is 150, what is the equity value?550650750850 13. 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?2001,3501,4001,450 14. 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% 15. 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. 111.8250.0282.0393.0 16. 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?180191229319 17. 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% 18. 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% 19. 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?2.452.652.853.05 20. Which of the following when viewed in isolation will NOT increase LBO returns?Paying down debtIncreasing CapExImproving EBITDA marginsCutting costs Time is Up!