Valuation and Transaction Structuring

Welcome to your Valuation and Transaction Structuring exam.

The assessment consists of 30 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.

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Name Exam Code Email

1. Coliseum acquired 100.0% of Pantheon’s equity for $2,000,000. Calculate the deal goodwill assuming Pantheon has goodwill of $100,000 on its balance sheet at the acquisition date. Assume no fair value adjustments to Pantheon’s net assets.

$381,059

$1,176,767

$1,276,767

$1,557,840

2. Pantheon’ s current share price is $1.50 and the Company has 1,000,000 shares outstanding. Assuming Coliseum offers a 50.0% premium to Pantheon’s current share price, calculate the price to book multiple implied by the offer.

2.4x

2.7x

3.4x

3.7x

3. Use the information below regarding a potential acquisition of Fitzgerald to calculate the net cash outflow required to buy all of Fitzgerald’s existing options.

Fitzgerald’s options (in thousands): 700
Weighted average strike price on Fitzgerald options: £12.00
Fitzgerald current share price (pre-deal): £14.00
Offer price per share: £20.00
Buyer current share price (pre-deal): £17.00

£1,400

£3,500

£5,600

£14,000

4. Which statement(s) regarding relative P/E analysis is true? More than one statement may be true.

For all-stock financed deals, assuming no synergies, if the acquirer P/E is less than the acquisition P/E, the deal is accretive to EPS

For all-debt financed deals, assuming no synergies, if the debt P/E is greater than the acquisition P/E, the deal is dilutive to EPS

For all-stock financed deals, assuming no synergies, if the acquirer P/E is greater than the acquisition P/E the deal is accretive to EPS

For all-debt financed deals, assuming no synergies, if the debt P/E is less than the acquisition P/E, the deal is dilutive to EPS

5. Using the balance sheet below, calculate Claudia Corp’s net debt.

$2,440.2

$2,701.2

$2,700.6

$3,315.6

6. Phoenix Inc has made an offer to acquire 100.0% of the equity of Claudia Corp from the previous question. The offer implies 2.0x the book value of Claudia Corp’s total common stockholders’ equity. If Claudia currently has 1,033 shares outstanding and its pre-deal share price is $8.00, calculate the implied percentage offer premium.

21%

23%

25%

27%

7. Based on the following information, an acquirer has made an offer to purchase 100.0% of the equity of Elixir for $90.00 per share. If the acquirer’s P/E is 15.0x and the after-tax cost of acquisition debt is 4.0%, which of the following statements is true:

Sales: $22,500
EBIT: $6,750
EBITDA: $9,750
Net income: $2,250
Diluted EPS: $4.50

The deal will be EPS accretive if the acquirer uses 100.0% stock financing

The deal will be EPS dilutive regardless of the acquisition financing used

The deal will be EPS accretive if the acquirer uses 100.0% debt financing

The deal will be EPS accretive regardless of the acquisition financing used

There is not enough information to calculate relative P/E’s

8. Assuming the buyer wants to finance the acquisition with 100.0% debt and that the after tax cost of debt is 4.0%, what is the maximum offer price per share that the acquirer can pay while avoiding EPS dilution?

Sales: $22,500
EBIT: $6,750
EBITDA: $9,750
Net income: $2,250
Diluted EPS: $4.50

$8.90

$90.00

$110.20

$112.50

9. Given the information below, calculate the break-even pre-tax synergies required for EPS neutrality.

Acquirer EPS (standalone): $7.00
Target EPS: $4.20
Pro forma combo EPS: $5.90
Marginal tax rate: 30.0%
Pro forma combo shares: 115.0

$126.5

$180.7

$421.7

$1,150.0

10. Washington acquired 100.0% of the equity of Lincoln for £450 financed by issuing new equity. Using the information below, calculate the deal goodwill. Assume no tax implications related to the new intangibles.

Washington total assets, pre-deal: £800
Washington total equity, pre-deal: £350
Lincoln total assets: £300
Lincoln total equity: £160
Lincoln goodwill: £50
Allocation to brands previously unrecognized on Lincoln’s balance sheet: £90

£60

£110

£200

£250

11. Washington acquired 100.0% of the equity of Lincoln for £450 financed by issuing new equity. Using the information below, calculate the total combined equity on the balance sheet of Washington post-acquisition of Lincoln. Assume no tax implications related to the new intangibles.

Washington total assets, pre-deal: £800
Washington total equity, pre-deal: £350
Lincoln total assets: £300
Lincoln total equity: £160
Lincoln goodwill: £50
Allocation to brands previously unrecognized on Lincoln’s balance sheet: £90

£350

£440

£750

£800

12. Using the information below, calculate the post-deal combined net income.

Target’s projected net income: €500
Acquirer’s projected net income: €200
Debt financing: €200
Equity financing: €300
Acquirer’s shares outstanding: €200
Acquirer’s share price: €30.00
Marginal tax rate: 30.0%
Interest rate on acquisition debt: 6.0%
Pre-tax synergies: €20

€694.4

€700.0

€705.6

€708.0

13. Which of the following statements are true? Note: More than one statement may be true.

Deal goodwill is equal to the purchase price less the fair value of the net assets acquired

Consolidated goodwill is equal to the buyer’s existing goodwill plus target goodwill plus deal goodwill

Beta reflects the relative volatility of a company’s stock compared to the market

A company’s beta can never be less than 1.0

The 10-year government bond in a liquid, developed bond market is typically the most suitable estimate of the risk free rate to be used in a calculation of the cost of equity

14. JC Capital recently acquired Bookworld. Calculate the IRR, given a five year holding period for its investment.

LTM EBITDA at entry: $122
Projected Year 5 EBITDA: $140
EBITDA entry / exit multiple: 6.5x
EBITDA leverage multiple at entry: 3.5x
Debt balance upon exit: $227

13.3%

16.9%

20.0%

86.6%

15. Pegasus Capital recently acquired Zoran Automotive. Use the following information about Zoran to calculate the LTM EBITDA entry multiple for Pegasus’ acquisition of Zoran.

Current share price: $100.00
Acquisition premium: 30.0%
Diluted shares outstanding: 124.0
Existing net debt to refinance: $600.0
LTM EBITDA: $1,045.0

11.9x

12.4x

15.4x

16.0x

16. Geneva Capital is currently assessing an acquisition of Apple Pie Bakeries. Geneva anticipates holding its investment in Apple Pie for four years and requires a 20.0% return on its investments. Using the information below, calculate the maximum equity value at entrance to achieve the required return.

LTM EBITDA at entry: $250.0
EBITDA leverage multiple for financing acquisition: 4.0x
Projected Year 4 EBITDA: $350.0
EBITDA exit multiple: 7.0x
Debt repaid over investment holding period: $500.0

$747.5

$750.0

$940.4

$1,181.5

17. Which one of the following statements is true?

Trading comparables analysis typically produces a higher valuation than transaction comparables

LBO analysis is a majority stake valuation methodology dependent upon the buyer’s return requirements and the availability of debt financing in the credit markets

Private equity buyers always rely upon multiple expansion to achieve their required return on their investments

WACC represents the required return of all equity stakeholders and is the discount rate used to derive the target company’s enterprise value

18. Calculate the implied share price of Ashland. Hint: Using the information below, calculate the EBITDA multiple at which Wood Block is currently trading and use this multiple to determine the implied share price of Ashland.

$2.65

$9.56

$12.40

$12.96

19. Use the treasury method and the information below to calculate the net new shares from Jackie Corp’s options. Assume Jackie’s current stock price is $58.00.

4.9

5.8

7.1

26.0

20. Use the information below to calculate the normalized net income calendarized to June 30, 2013. The marginal tax rate is 37.0%. Use the number of months to run the calendarization rather than days.

$1,239.5

$1,491.5

$1,743.5

$1,891.5

21. Calculate WACC using the information below.

6.9%

8.1%

8.2%

8.7%

22. You are valuing Michael’s, a privately held discount consumer goods retailer. Using the information on the comparable companies below, determine the average unlevered beta of the comps to be used in valuing Michael’s.

0.62

0.83

0.94

1.56

23. Using the information below, determine the WACC for Wood Block Prints. Wood Block has a long term target debt / equity ratio of 25.0%.

Average unlevered beta of comparable companies: 1.2
Risk free rate: 3.9%
Market risk premium: 4.0%
Cost of debt: 7.0%
MTR: 30.0%

7.8%

7.9%

8.6%

8.8%

24. Use the following cash flows and assumptions to calculate enterprise value at the start of Year 1.

Assume the following:
WACC: 9.0%
Perpetuity growth rate: 3.0%
Assume mid-year discounting for cash flows and terminal value

$1,280.8

$1,293.0

$1,306.6

$1,337.2

25. Vivaldi Equity Capital recently acquired Moonray Laser. Vivaldi requires a 30.0% return on its investments given a five year holding period. Calculate the minimum value of Moonray’s equity on exit given the information below.

LTM EBITDA at entry: $52.0
EBITDA entry multiple 8.0x
Debt raised to fund acquisition: $234.0
Projected Year 5 EBITDA: $80.0

$406.0

$416.2

$640.0

$675.8

26. A financial sponsor is considering an acquisition of Alpha Omega. Creditors require Alpha Omega to maintain a minimum interest coverage ratio (defined as EBIT / interest expense) of 1.75x and the interest rate on debt is 6.0%. What is the maximum amount of debt that can be issued while maintaining the minimum interest coverage ratio?

Sales: $6,429.0
Cost of goods sold: $3,458.0
Selling, general & administrative costs: $2,109.0
Depreciation & amortization: $582.0
Operating profit: $280.0

$160.0

$2,666.7

$4,666.7

$8,166.7

27. The financial sponsor expects to grow EBITDA at an average yearly rate of 10% over the 4 years post-acquisition (year 1 to 4). Assuming the business is initially purchased at 9.0x historical EBITDA and will be sold at the end of year 4 for a multiple of 8.0x EBITDA, calculate the absolute increase in enterprise value achieved during the holding period (4 years).

Sales: $6,429.0
Cost of goods sold: $3,458.0
Selling, general & administrative costs: $2,109.0
Depreciation & amortization: $582.0
Operating profit: $280.0

$759.6

$2,338.4

$3,200.4

$3,600.5

28. Use the information below to calculate the P/E multiple.

Shares outstanding: 10,123
Basic weighted average shares outstanding: 10,623
Diluted weighted average shares outstanding: 11,623
Net income: $23,250
EBIT: $45,000
Current share price: $28.00

7.2x

12.2x

12.8x

14.0x

29. Use the following information to calculate enterprise value.

€10,050

€10,125

€10,175

€10,875

30. Banana recently acquired Orange at a 20.0% premium to Orange’s current share and financed the acquisition with 40.0% equity financing. Using this information as well as the data below, calculate Banana’s ownership percentage in the pro-forma company post-acquisition of Orange.

81.1%

81.4%

91.6%

92.9%