Valuation and Transaction Structuringby pwsJune 26, 2019April 21, 2020 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. 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 exam code (CFFall2020), and your email address. If you have any questions, please contact your instructor. Good luck! 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.2.4x2.7x3.4x3.7x 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): 700Weighted average strike price on Fitzgerald options: £12.00Fitzgerald current share price (pre-deal): £14.00Offer price per share: £20.00Buyer 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: $22,500EBIT: $6,750EBITDA: $9,750Net income: $2,250Diluted EPS: $4.50The deal will be EPS accretive if the acquirer uses 100.0% stock financingThe deal will be EPS dilutive regardless of the acquisition financing usedThe deal will be EPS accretive if the acquirer uses 100.0% debt financingThe deal will be EPS accretive regardless of the acquisition financing usedThere 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: $22,500EBIT: $6,750EBITDA: $9,750Net income: $2,250Diluted 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): $7.00Target EPS: $4.20Pro forma combo EPS: $5.90Marginal 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: £800Washington total equity, pre-deal: £350Lincoln total assets: £300Lincoln total equity: £160Lincoln goodwill: £50Allocation 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: £800Washington total equity, pre-deal: £350Lincoln total assets: £300Lincoln total equity: £160Lincoln goodwill: £50Allocation 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: €500Acquirer’s projected net income: €200Debt financing: €200Equity financing: €300Acquirer’s shares outstanding: €200Acquirer’s share price: €30.00Marginal 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: $122Projected Year 5 EBITDA: $140EBITDA entry / exit multiple: 6.5xEBITDA leverage multiple at entry: 3.5xDebt balance upon exit: $22713.3%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: $100.00Acquisition premium: 30.0%Diluted shares outstanding: 124.0Existing net debt to refinance: $600.0LTM EBITDA: $1,045.011.9x12.4x15.4x16.0x 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: $250.0EBITDA leverage multiple for financing acquisition: 4.0xProjected Year 4 EBITDA: $350.0EBITDA exit multiple: 7.0xDebt 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 comparablesLBO analysis is a majority stake valuation methodology dependent upon the buyer’s return requirements and the availability of debt financing in the credit marketsPrivate equity buyers always rely upon multiple expansion to achieve their required return on their investmentsWACC 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. 184.108.40.206.0 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. 0.620.830.941.56 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: 1.2Risk 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: $52.0EBITDA entry multiple 8.0xDebt raised to fund acquisition: $234.0Projected 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: $6,429.0Cost of goods sold: $3,458.0Selling, general & administrative costs: $2,109.0Depreciation & amortization: $582.0Operating 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: $6,429.0Cost of goods sold: $3,458.0Selling, general & administrative costs: $2,109.0Depreciation & amortization: $582.0Operating 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: 10,123Basic weighted average shares outstanding: 10,623Diluted weighted average shares outstanding: 11,623Net income: $23,250EBIT: $45,000Current share price: $28.007.2x12.2x12.8x14.0x 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% Time is Up!