multiple choice and short answer question. Topic is about investment banking.

COMPARABLE COMPANIES ANALYSIS 1. What is the premise behind comparable companies analysis? ANSWER: 2. Select all that apply. What are some of the key business characteristics to examine when screening for comparable companies? a) Sector b) Return on investment c) End markets d) Distribution channels ANSWER: 3. Select all that apply. What are some of the key financial characteristics to examine when screening for comparable companies? a) Profitability b) Growth profile c) Customers d) Credit profile ANSWER: 1 4. Company A and Company B are peer companies in terms of business characteristics, but they are currently trading at substantially different multiples. What discrepancies in financial characteristics could help explain this situation? ANSWER: 5. Select all that apply. What is EBITDA and why it is useful for relative comparison when using enterprise value trading multiples? a) Earnings before insurance, taxes, depreciation and amortization b) Earnings before interest, taxes, depreciation and amortization c) It is free from differences resulting from capital structure, tax regime, accounting policies, and capital spending d) It is viewed as the earnings available to equity holders once all of the company's obligations have been satisfied ANSWER: 6. What are the two most generic and widely used valuation multiples? a) Enterprise Value-to-EBITDA b) Total Debt-to-EBITDA c) Price-to-Earnings (P/E) d) Equity Value-to-Cash Flow ANSWER: 2 7. Given the assumptions below, calculate fully diluted shares outstanding using the Treasury Stock Method. ($ in millions, except per share data; shares in millions) Assumptions Current Share Price Basic Shares Outstanding Options Outstanding Weighted Average Exercise Price $40.00 200.0 10.0 $26.00 ANSWER: 8. If a company has an enterprise value of $1,000 million and equity value of $1,150 million, what is the company's net debt? a) $250 million b) ($250) million c) $150 million d) ($150) million ANSWER: 3 9. Given the assumptions below, calculate equity value and enterprise value. ($ in millions, except per share data; shares in millions) Assumptions Current Share Price Fully Diluted Shares Outstanding Total Debt Preferred Stock Noncontrolling Interest Cash and Cash Equivalents $20.00 50.0 250.0 25.0 15.0 50.0 ANSWER: 10. Given the information below, calculate LTM sales. ($ in millions) Sales FYE 12/31/07 YTD 9/30/07 YTD 9/30/08 $750.0 600.0 850.0 ANSWER: 11. Given the information below, calculate CY12/31/2008E sales. ($ in millions) Sales FYE 4/30/2008A FYE 4/30/2009E $1,000.0 1,150.0 ANSWER: 4 12. Which of the following would be typical non-recurring charges? a) Losses on asset sales b) Severance from restructuring c) Inventory write-offs d) Favorable litigation settlements ANSWER: 13. Which of the following would be typical non-recurring benefits? a) Goodwill impairment b) Gains from asset sales c) Facility closure d) Favorable litigation settlements ANSWER: 14. Given the 2007 income statement data and non-recurring items below, calculate adjusted EBITDA and net income. ($ in millions) Income Statement Reported 2007 Sales Cost of Goods Sold Gross Profit Selling, General & Administrative Restructuring Charges Operating Income (EBIT) Interest Expense Pre-tax Income Income Taxes @ 40% Adjustments + - Adjusted 2007 $1,000.0 625.0 $375.0 230.0 10.0 $135.0 35.0 $100.0 40.0 $60.0 Net Income Operating Income (EBIT) Depreciation & Amortization EBITDA $135.0 50.0 $185.0 Non-recurring items: $5.0 million pre-tax inventory write-down $10.0 million pre-tax restructuring charge 5 ANSWER: 15. Using the calculations performed in questions #9 and #14, calculate the 2007 equity value and enterprise value multiples. ANSWER: 16. Given a 7.0x to 8.0x 2008E EV/EBITDA multiple range and 2008E EBITDA of $250 million, calculate an implied enterprise value range. ANSWER: 17. Higher multiples are typically driven by what characteristics? ANSWER: 18. All else being equal, which company would be expected to trade at a higher multiplea heavily leveraged company or one with moderate to low leverage? Why? ANSWER: 19. Why are forward-year multiples typically preferred to LTM multiples in comparable companies? ANSWER: 6 20. When would an NFY+1 multiple be used in lieu of an NFY multiple? ANSWER: 21. A \"Ba1\" rating would be a _________ rating by _________. a) Investment grade, Moody's b) Non-investment grade, Moody's c) Investment grade, S&P d) Non-investment grade, S&P ANSWER: 22. The equivalent rating to Ba1 is: a) BB b) BB+ c) Baa1 d) B ANSWER: 23. Why are comparable companies sometimes tiered into different groups? ANSWER: 7 24. Select ALL that apply. Assuming the need to start from scratch, what are the best sources for locating comparable companies for a given public company? a) 10-K b) Equity research reports c) Fairness opinions for comparable companiestaken from proxy statements for recently consummated M&A transactions in the sector d) 14D-9 ANSWER: 25. Match the following SEC forms to their names: 10-K 10-Q 8-K DEF14A Current report Annual report Quarterly report Proxy statement ANSWER: 10-K 10-Q 8-K DEF14A 26. What is an \"initiating coverage\" research report? Why is it important? ANSWER: 27. What are First Call and IBES? ANSWER: 8 28. Why is it important to carefully analyze the individual analyst estimates within consensus estimates? ANSWER: 29. Why is it important to use companies' earnings releases prior to the filing of 10-Qs? ANSWER: 30. Why is the share price as a percentage of the 52-week high an important indicator? ANSWER: 9