Financial Valuation Quizz 06 Flashcards
Assume Apex Co. has a constant leverage. We can apply both APV and WACC to value Apex.
True
The WACC approach ignores the value of interest tax shields, because interest is not deducted in the FCF calculation such that the EBT is larger and more taxes have to be paid.
False
The asset beta is a weighted average of the debt and equity beta. As long as debt is considered risk-free, the equity beta increases linearly with the debt-to-equity ratio.
True
When using the APV method, we assume that the debt schedule is known in absolute terms and discount FCFs with the after-tax cost of capital.
False
The after-tax WACC is always strictly lower than the pre-tax WACC.
False
The interest payments have to be deducted in order to calculate the FCF when using the WACC method for company valuation.
False
The percentage-of-sales approach assumes that cashflow items vary in proportion to sales.
True
Valuation of a company is most sensitive to which of the following?
Growth rate
Apex Co. produces smoothies and sells them in Europe. At the end of 2021, Apex sells €50mn worth of smoothies. Apex utilizes huge blenders with a deprecation of €2mn/year and only needs €3mn/year worth of raw materials as new working capital. If Apex’s EBIT margin (i.e., EBIT/Sales) is 20% and its tax rate is 40%, what is its free cash flow (all numbers are in €mn)?
5
Now assume that Apex (from question 9) has pre-tax cost of capital of 10.02%, a debt-to-equity ratio of 1/3, cost of debt equal to 2%, and expects to see its sales to grow at 5% each year. What is Apex’s value at the beginning of 2021? (All numbers are in €mn.)
100
