Business Valuation and Restructuring 2

Question 1

Shareholder value analysis (SVA)

Answer 1

~ evaluates companies ability to generate value and increase S/H wealth
value = sum of cash flows from 6 key drivers + discounted by co’s cost of capital - MV of debt

Question 2

6 Key Drivers used in SVA

Answer 2

SLOW CAT
Sales
Life of product
Op margin
WC

Cost of capital
Asset investment
Tax

Question 3

Most appropriate way to value tech companies is…

Answer 3

discounted cash flow approach

Question 4

Divestment

Answer 4

disposal of parts of a co e.g. selling a sub

Question 5

Managment Buy-Outs (MBO)

Answer 5

~ bought by existing mgt

~ viewed more positively by staff

Question 6

Spin-off/ Demerger

Answer 6

S/H given shares in new legal entity ‘pro rata’ to S/H in parent co

Question 7

Repurchase of own shares

Answer 7

~ can enhance share price
~ increase gearing
~ allows S/H in UQCo to sell shares

Question 8

Liquidation/ Winding-up

Answer 8

initiated by creditors or shareholders

Question 9

Outsourcing

Answer 9

allows focus on core acitivites + buy specialist goods and services