Ch. 9 Valuation Analysis

Question 1

_______ is the calculation which compares the projected amount to be earned from a project (using a present value calculation) versus the cost of the project (also using present value).

Answer 1

Net Present Value

Question 2

Internal Rate of Return (IRR), which is one of the key components of NPV, is the discount rate that’s used when calculating the present value of cash flows. The lower the discount rate, the _____ the present value. The IRR is the discount rate which matches the present value of _____ and _____. In other words, it’s the interest rate that makes the NPV equal to _____

Answer 2

Greater the NPV; matches inflows and outflows; interest rate that makes NPV equal to zero

Question 3

If given both the primary EPS and the fully diluted EPS, use the _____ number in calculations

Answer 3

Use fully diluted

Question 4

_____ analysis should be used as a valuation metric when comparing two companies and working capital is an important component.

Answer 4

DCF

Question 5

T/F: In addition to price, an important concern for a target is how the acquirer will be able to pay for the transaction

Answer 5

True

Question 6

______ analysis and _____ analysis are NOT used to value an IPO. However, comparable company analysis, SOTP, and DCF may be used.

Answer 6

Precedent transaction analysis and LBO analysis

Question 7

_____ analysis is most relevant for private equity investors, but not for ______.

Answer 7

LBO; venture capitalists

Question 8

T/F: Debt/EBITDA ratio is an important valuation metric in LBO analysis; however, EV/EBITDA is not.

Answer 8

True

Question 9

When valuing the assets of a company being acquired, a higher write-up will _____ the amount of goodwill after the acquisition is complete.

Answer 9

Lower