125)

Which of the following are key differences between a cross-border M&A deal and a normal M&A deal between two companies in the same country?

a) In cross-border deals, buyers cannot issue stock as easily since the seller is traded on a different stock market.

b) The currency exchange rate (FX rate) is critical, and you must consider how it impacts both the purchase price and the sellers financials, converted to the buyers currency, afterward.

c) It is more difficult to use excess cash from the buyer or seller to fund the deal because the respective cash balances may be in different currencies.

d) There may be different accounting standards for items like transaction fees and the purchase price allocation schedule, which you have to reflect in the model.

137)

Normally in a leveraged buyout analysis, you use the existing 3-statement projections you have for a company. However, in some cases you will have to revisit your assumptions and build a new model, especially when the company is changing its core business model. If a retailer, restaurant, or hotel is switching from an owned & operated business model to a franchised business model, what would change in your LBO model and deal analysis?

a) Potentially, franchised revenue could be much higher-margin and carry lower fixed costs than revenue from owned & operated locations.

b) Franchised revenue is effectively free since there are no associated costs or corporate overhead, so COGS and Operating Expenses would be 0 for that segment.

c) The franchise business model does present some additional risk because the brand name and quality of the experience may not be maintained, which could hurt sales.

d) The franchise model may make the company less attractive to private equity firms since it will result in a lower fixed asset base.

141)

Which of the following items DIRECTLY factor into the calculation of a private equity firms internal rate of return (IRR) in a leveraged buyout?

a) Net Income.

b) Dividends.

c) Cash flow available for new debt repayment.

d) Initial investor equity contribution from the PE firm.

e) Optional debt principal repayments.

f) Net interest expense.

g) Net sale proceeds upon exit.

h) Capital expenditures.

i) Mandatory debt principal repayments.