Cap structure and value

Question 1

Who are the stakeholders of a corporation objectives

Answer 1

Equity holders that holders management and employees

Question 2

What is the treasury stock method

Answer 2

Find common shares outstanding
Add new shares created
New shares created equals ATM options and warrants and restricted stock minus shares purchase in the market with proceeds

Question 3

Can a company have negative market cap?

Answer 3

No share price cannot be zero

Question 4

Can a company have negative enterprise value

Answer 4

Yes

Cash equivalents could be very highThe value is firm would eventually convert to its equity value or market price

Question 5

What is enterprise value?

Answer 5

Represents the value of the company’s core business operations available to investors

Question 6

What are 3 considerations to include in enterprise value

Answer 6

Is the item a long-term funding source but the company?

Does the item cost the acquirer when they to buy it?

Question 7

What are the pros/cons of Comparable Companies Analysis

Answer 7

Pro: 
Quick and easy form of analysis
Accounts for current market perceptions
Let’s distorted by overly optimistic financial projections
Good measure of relative value

Con:
Can be hard to determine the comparable universe
When the market is overvalued, relative valuation may indicate that a company is undervalued
Assumptions for DCF are also embedded in the company

Question 8

Pros and Cons of Precedent Transactions

Answer 8

Pros:
It’s beneficial when valuing a company that is similar to the precedent transaction universe

Cons:
If transactions happened too long ago they may not reflect current market sentiment

Acquisition premiums are already baked into transaction multiples so not appropriate for valuation standalone

Similar drawback to comps that transaction and comps may not be similar