Link: https:/.eu/regional_policy/sources/docgener/evaluation/library/united_kingdom/0611_uk_business_link_eval_en.pdf

1. Our company (A) is going to buy another company (B). We want to value the shares of

B and, therefore, we will use three alternatives of the structure Debt/Shareholders'

Equity so as to obtain the WACC: 1) present structure of A; 2) present structure of B,

2) structure used by A to finance the acquisition of B's shares. We will value the

company B by applying these three alternatives and then take as a reference the

average of the results. Is this correct?

3. When valuing the shares of my company, I calculate the present value of the expected

cash flows to shareholders and I add to the result obtained cash holdings and liquid

investments. Is that correct?

4. I think the Free Cash Flow (FCF) can be obtained from the Equity Cash Flow (CFac) by

using the relation: FCF = CFac + Interests - D. Is this true?

5. Is the relation between capitalization and book value of shares a good guide to

investments?

6. As my company is not listed, the investment banks apply an illiquidity premium.

Actually, they say it is an illiquidity premium but then they call it a small cap premium.

One of the banks, apparently based on Titman y Martin (2007), added the following

small cap premiums: "0.91% if the capitalization is situated between $1,167 and $4,794

million; 1.70% if the capitalization is between $331 and $1,167 million; 4.01% if it is

lower than $331 million". Another bank adds 2% because historically the return of small

companies was smaller than that of big companies. Which one is more appropriate?

7. Which taxes do I have to use when calculating the Free Cash Flow (FCF) - is it the

marginal tax rate or the medium tax rate of the leveraged company?

9. According to what I read in a book, market efficiency hypothesis implies that the

expected average value of variations in the shares price is zero. Therefore, the best

estimate of the future price of a share is its price today, as it incorporates all the

available information. Is that right?

10. An investment bank calculated my WACC. The report says: "the definition of the

WACC is WACC = RF + u (RM - RF); RF being the risk-free rate, u the unleveraged

beta and RM the market risk rate." This is different from what we have seen in our

class. Are they right?