Mod

Question 1

DSO DIO DPO

Answer 1

DSO = Receivables / Revenue * Number of days in the period
DIO = Inventory / COGS * # days
DPO = Payables / COGS * # days

Question 2

FCF to the firm (Unlevered FCF); FCF to Equity (Levered FCF); CFO; EBITDA

Answer 2

UFCF / FCFF used in DCF = EBIT(1-t)-change in WC - Capex + D&A
LFCF / FCFE used in LBO (cash available for debt repayment) = Net Income - Change in WC - Capex + D&A OR = CFO - Capex

EBITDA proxy for cashflows (ignores Capex so can skew picture in capital intensive industries)

CFO - cash flow from operations (should be looked at in conjunction with income statement- might be affected by timing of contracts and additional investment in WC to serve future contract)

Question 3

PIK interest treatment

Answer 3

Non-cash expense on CF statement in Operating Cashflow; Interest expense on IS; Bond EOP balance grows by PIK amount

Question 4

MOIC / IRR formulas

Answer 4

Sponsor’s Equity at exit / Invested Equity. MOIC = (1+IRR)^(#of years). IRR = MOIC ^ (1/# of years) - 1

Question 5

PPA

Answer 5

PPA Goodwill = Purchase Price - Book Value of Equity - Tangible/intangible assets write-ups + Existing Goodwill + DTL

Question 6

DTL Calculation (deferred tax liability) in PPA

Answer 6

DTL = Appreciation of PP&E and intangibles * tax rate

Question 7

Accounting for financing and transaction fees

Answer 7

• Revolver fees are capitalized and amortized
• Financing fees (OID, fees) are contra-account to debt and amortized over time
• Transaction fees are expensed immediately from retained earnings

Question 8

Ability to pay of financial sponsor - calc

Answer 8

• Assumed exit multiple * Exit EBITDA
• Exit EV less repaid debt
• Less other equity outflows
• Discount equity value back to the time of acquisition (exit eqv/IRR^# of years)=entry equity
• Add Net Debt
• Subtract financing & trxn fees
• Divide by first year EBITDA to get implied entry multiple

Question 9

Accelerated depreciation methods

Answer 9

Double declining method: Depreciation = 2 x straight-line depreciation rate x Book value at the beginning of the year
Sum of the years’ digits method: Number of years estimated life remaining / SYD [SYD = n*(n+1)/2]