4930 MC

financial modeling may be applied in which of the following situations

- business valuation - management decision making - capital budgeting - financial statement analysis

an increase in gross margin over time could indicate what about the firm

- it has been able to reduce its costs compared to sales - it has been able to raise prices - it has been able to achieve a combination of (a) and (b)

Which of the following represent limitations of real options?

- key assumptions often are very difficult to quantify, especially volatility - project delays are not independent, therefore, selecting one option may foreclose other options - often requires complex modeling

Which of the following are examples of intangible assets that may have value to the acquiring company?

- patents - trade names - customer lists and relationships - covenants not to compete

Which of the following represent advantages of the comparable companies valuation method?

uses the most accurate market based valuation at a point in time

Changes in the key assumptions underlying the estimation of a firm's terminal period valuation are likely to have

a disproportionately large impact on the firm's enterprise and equity values

Which of the following is not true about generally accepted accounting principles (GAAP)?

GAAP guarantees that a firm's financial books are accurate

which of the following is true of pro forma financial statements?

pro forma statements purport to show what the combined firms would look adjusted for synergy and the terms of the deal

In determining the purchase price for an acquisition target, which one of the following valuation methods does not require the addition of a purchase price premium?

recent transactions method

Common items found on an income statement include all of the following except for which of the following

retained earnings

Which one of the following factors is not considered calculating a firm's PEG ratio?

share exchange ratio

Which of the following is not generally considered a valuation method?

share exchange ratio method

Which one of the following is not a commonly used method of valuing target firms?

share exchange ratio method

Which of the following is not true about common size financial statements?

such statements are useful for comparing businesses of different sizes in the same industry at different moments in time

Real Cool Autos acquired Automotive industries in a transaction that produced an NPV of $3.7 million. This NPV represents

synergy

Which of the following is not true about the liquidation/break up valuation methods?

the liquidation value of most of the firm's assets is about the same

Common items found on a cash flow statement include all of the following except for which of the following

the proceeds of asset sales

financial models are said to be in balance when

total assets equal total liabilities plus shareholders equity

value drivers are best described by which of the following statements

variables which exert the greatest impact on firm value

Intangible assets often constitute a substantial source of value to the acquiring firm. Which of the following are not generally considered intangible assets?

warranty and contingent claimes

A target firms standalone value is best defined by which of the following statements

what a business would be worth as a going concern in the absence of a takeover bid

The financial modeling process used to value a firm consists of a series of steps. These include which of the following

- analyzing the target firm's historical statements to identify the primary determinants of cash flow. - project three to five years (or more) of annual pro form financial statements. This three to five year period is called the planning period - estimating the present value projected pro forma cash flows during the planning period - estimating the terminal value

Which of the following represent options available to managers in making investment decisions?

- delay initial investment - accelerate cumulative investment - abandon the investment at a later date

Limitations in applying the comparable companies' method of valuation include which of the following?

- finding truly comparable companies is difficult - the use of market based methods can result in significant under or overvaluation during periods of declining or rising stock markets - market based methods can be manipulated easily, because the methods do not require a clear statement of assumptions with respect to risk, growth, or the timing or magnitude of future earnings and cash flows

Which of the following future events could affect projections of a firm's cash flow?

- introduction of new products by the firm - the emergence of products that are substitutes for the firm's products - the emergence of additional competitors to the firm - improvements in the firm's productivity

Which of the following statements is true?

A 10% increase in sales has a larger impact on cash flow than a 10% reduction in cost of sales

Which of the following is not true about real options

all investment decisions contain identifiable and measurable real options

When changing financial model assumptions, which of the following is true?

change only one assumption at a time

common items found on a balance sheet include all of the following except for which of the following?

cost of sales

Target is a wholly owned subsidiary of MegaCorp Inc. MegaCorp supplies a number of services to target. Target sells some of its products to other MegaCorp subsidiaries. Target also buys products from other MegaCorp subsidiaries that are used as inputs in producing Target's products. Which of the following adjustments should the acquirer make to Target's financial statements before valuing the firm?

deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at above market prices and actual market prices from Target's cost of sales

The tangible book value or equity per share method is applicable primarily to the following industries

distribution and financial services

Which of the following statements about the comparable companies valuation method is not true?

generally provides the most accurate valuation method

All of the following are true for market based valuation methods except for which of the following?

market based methods are always superior to discounted cash flow techniques