first-test-questions-for-brainscape - Cakemasters

Question 1

Cakemasters

Why was it impossible to use Worth of stockholders’ equity to value Cake Masters?

Answer 1

It’s a private company with no publicy traded stock???

Question 2

Cakemasters

Where would you find the book value of Cake Master’s Assets? What is wrong with using book value of assets as an estimate of the value of a firm?

Answer 2

It would be reported in the firm’s records. Assets are reported at historical cost and most likely do not correspond to current market value???

Question 3

Cakemasters

What are the two assumptions underlying valuation by market multiples? Why would these assumptions lead you to exclude Bakeco from the analysis?

Answer 3

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Question 4

Cakemasters

Why is it important to include a provision for cash flows beyond the planning period when using the cash flow valuation method to value Cake Masters?

Answer 4

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Question 5

Cakemasters

How do we know that Cake Master’s should abandon the Par Baked Cake project?

Answer 5

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Question 6

Cakemasters

If our best estimate of the value of Cake Masters (with Fresh Baked Cakes only) is $6.1M, why is our BATNA to buy Cake Masters at the $5.0M offer price?

Answer 6

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Question 7

Cakemasters

What does an NPV if $1.1 million tell us about buying Cake Masters at $5.0 million?

Answer 7

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Question 8

Cakemasters

What does an IRR of 23% for buying Cake Masters at $5.0 million tell us if our WACC is 18%?

Answer 8

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