Lecture 2

Question 1

Valuation approaches in M&A

Answer 1

-multiples of comparables from stock market
-multiples from prior transactions
-entity value discounted cash flow (DCF)
-the ”VC” method
-free cash flows to equity or capital (ECF, CCF), Adjusted present value (APV)
-asset-based methods
-(real options)

Question 2

Value of stockholders’ claims (equity value)

Answer 2

Market value of stock

Price of stock*quantity of stock

Question 3

Value of debtholders’ claims

Answer 3

Net interest bearing debt

Interest bearing debt -cash and cash equivalents

Question 4

Entity Value (EV)

Answer 4

Market value of stock + net interest bearing debt (+ value of other claims such as convertibles or stock options)

Question 5

Most common multiples

Answer 5

EV/Sales multiple
EV/EBITDA multiple
EV/EBIT multiple
Price-to-Earnings ratio (P/E)
Market-to-Book ratio (M/B)

Question 6

Idea of entity DCF valuation

Answer 6

Value = present value of free cash flows of estimation period + present value of terminal value