Deck 15: Valuation

Question 1

Moeller, Schlingemann, and Stulz's research shows that during the period 1998-2001, acquiring firm shareholders gained a total of $240 billion!

Answer 1

False

Question 2

Acquiring firm shareholders tend to earn zero or negative returns from mergers.

Answer 2

True

Question 3

When multiples are derived from an analysis of historical earnings, they are referred to as trailing multiples.

Answer 3

True

Question 4

The net effect of arbitrage buying is to increase the price while also increasing the probability that the company will be taken over.

Question 5

Which of the following is true:

A) FCF = EBITDA - CE - CWC + CTP
B) FCF = EBITDA - CE - CWC - CTP
C) FCF = EBITDA - CE + CWC + CTP
D) None of the above

Question 6

For a company with positive debt:

A) Enterprise value is less then equity value
B) Enterprise value equals equity value
C) Enterprise value is more than equity value
D) None of the above

Question 7

Continuing value and exit value mean the same thing.

Question 8

The discount rate used to discount future cash flows should:

A) Be equal to yield on long-term U.S. Treasuries
B) Be 2% greater than yield on long-term U.S. Treasuries
C) Incorporate a risk premium equal to perceived risks and volatility of future cash flow stream
D) Usually will be 1% greater than yield on high-yield bonds

Question 9

In bear markets, control premiums (relative to current market prices) may rise.

Question 10

For many years the concentrated holdings by large block holders made hostile takeovers in Europe more difficult to complete.

Question 11

Research by Kaplan and Ruback found that:

A) Median estimates of the DCF were within 10% of the market values
B) Comparable multiples yielded significantly higher values than DCF measures
C) Comparable multiples yielded significantly lower values than DCF measures
D) None of the above

Question 12

In thin markets float shares are not as plentiful.

Question 13

For the bidder to enjoy an increase in EPS following a series of acquisitions, and in effect, play the P/E game, the following must be true:

A) Post-deal P/E ratio must not decline
B) Acquirer must pay continually lower premiums with each deal
C) The bidder must make fewer deals over time
D) None of the above

Question 14

Research by Roach showed:

A) Merger premiums have risen over time
B) Strategic mergers provide more synergistic benefits
C) Strategic focus is not a determinant of merger premiums
D) All the above
E) Both a and b

Question 15

Answer: In Rau and Vermaelen's research, glamour firms have high book to market value ratios.

Question 16

Business valuation is as much of an art as it is a science.

Question 17

Which of the following are desirable characteristics of targets?

A) Rapidly growing cash flows and earnings
B) Low P/E ratios
C) Market value less than book value
D) All the above True or False Questions