Business Valuation Practice
Questions
Course Introduction
Business Valuation explores the methodologies, principles, and processes involved in determining the economic value of a business or company. The course covers key valuation techniques such as discounted cash flow (DCF), market multiples, and asset-based approaches, while considering practical factors like risk assessment, financial statement analysis, and industry benchmarking. Students learn to assess value drivers, estimate future cash flows, and evaluate market conditions affecting business worth. Real-world case studies and project-based assignments help develop the skills necessary to perform valuations for mergers, acquisitions, investment analysis, and strategic planning within various business contexts.
Recommended Textbook
Mergers Acquisitions and Other Restructuring Activities 7th Edition by Donald DePamphilis
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18 Chapters
1838 Verified Questions
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Chapter 1: Introduction to Mergers, acquisitions, and Other
Restructuring Activities
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) In a consolidation,two or more companies join together to form a new firm.
A)True
B)False
Answer: True
Q2) ESOPs may be used for which of the following?
A) As an alternative to divestiture
B) To consummate management buyouts
C) As an anti-takeover defense
D) A, B, and C
E) A and B only
Answer: D
Q3) Financial restructuring generally refers to actions taken by the firm to change total debt and equity structure.
A)True
B)False
Answer: True
Q4) Holding companies and their shareholders may be subject to triple taxation. A)True
B)False Answer: True
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Chapter 2: The Regulatory Environment
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103 Verified Questions
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Sample Questions
Q1) Antitrust authorities may approve a proposed takeover even if the resulting combination will substantially increase market concentration if the target from would go bankrupt if the takeover does not occur.
A)True
B)False
Answer: True
Q2) Do you believe that the FTC might approve of Microsoft acquiring Intuit today? Why or why not?
Answer: It is doubtful the transaction would be approved today despite the increase in competition.Microsoft's size precludes it from receiving approval for any acquisition that gives the perception that "monopoly" pricing may be possible.
Q3) The Sarbanes-Oxley bill is intended to achieve which of the following:
A) Auditor independence
B) Corporate responsibility
C) Improved financial disclosure
D) Increased penalties for fraudulent behavior
E) All of the above
Answer: E
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Page 4
Chapter 3: The Corporate Takeover Market: Common
Takeover Tactics, anti-Takeover Defenses, and Corporate Governance
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) The shareholder interests theory suggests that shareholders gain when management resists takeover attempts.
A)True
B)False
Answer: True
Q2) Should the antitrust regulators approve the Verizon/MCI merger? Explain your answer.
Answer: Because of the plethora of competing alternatives,it does not appear that consumers will be hurt.However,because of the general lack of alternatives, business customers may experience an increase in cost of telecommunication services.The FCC and FTC may require that the combined firms dispose of certain operations in heavily concentrated regional markets in order to make conditions more competitive.
Q3) How did both AMP and AlliedSignal use litigation in this takeover battle?
Answer: AMP used Pennsylvania anti-takeover statutes to try to block Allied Signal's ability to vote its shares and to prevent AlliedSignal from taking control of the AMP Board through its consent solicitation.Both sides used lawsuits to increase the cost of the acquisition and to wear down their opponents.
Page 5
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Chapter 4: Planning,developing Business,and Acquisition
Plans: Phases 1 and 2 of the Acquisition Process
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) A merger or acquisition is generally not considered an example of an implementation strategy.
A)True
B)False
Q2) A cost leadership strategy can be highly destructive to the firm with the largest market share if pursued concurrently by a number of firms with very different market shares.
A)True B)False
Q3) What factors internal to Adobe and Omniture seem to be driving the transaction? Be specific.
Q4) Market segmentation involves identifying customers with common characteristics and needs.
A)True B)False
Q5) Contingency plans are actions that are taken as an alternative to the firm's current business strategy.
A)True B)False
Q6) What was driving change in the pharmaceutical industry in the late 1990s? Page 6
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Page 7
Chapter 5: Implementation: Search Through Closing:
Phases 3 to 10 of the Acquisition Process
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Conduct an external and internal analysis of Oracle.Briefly describe those factors that influenced the development of Oracle's business strategy.Be specific.
Q2) Banks are commonly used to provide bridge or temporary financing to pay all or a portion of the purchase price and meet possible working capital requirements until permanent financing can be found.
A)True
B)False
Q3) Speculate on why Wachovia's management rebuffed the offer from SunTrust Banks with the ambiguous statement that it was not in the best interests of Wachovia's shareholders?
Q4) Buyers should not be concerned about performing an exhaustive due diligence since in doing so they could degrade the value of the target firm because of the disruptive nature of a rigorous due diligence.The buyer can be assured that all significant risks can be handled through the standard representations and warranties commonly found in agreements of purchase and sale.
A)True
B)False
Q5) What was the role of "strategic controls" in implementing the K2 business plan?
Page 8
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Chapter 6: Postclosing Integration: Mergers, acquisitions, and Business Alliances
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) Integration of a new business into an existing one rarely affects current operations of either business.
A)True
B)False
Q2) How did the potential for culture clash affect the way Alliance acquired Pimco?
Q3) Identify ways in which the merger combined companies with complementary skills and resources?
Q4) In what way would you characterize this transaction as a merger of equals? In what ways should it not be considered a merger of equals?
Q5) Differences in the way the management of the acquiring and target firms make decisions,the pace of decision-making,and perceived values are common examples of cultural differences between the two firms.
A)True
B)False
Q6) What are the major challenges the management of the combined companies are likely to face?
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How would you recommend resolving these issues?
Q7) What were the principal risks to the merger?
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Chapter 7: Merger and Acquisition Cash Flow Valuation
Basics
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81 Verified Questions
81 Flashcards
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Sample Questions
Q1) The incremental cash flows of a merger can relate to which of the following:
A) Working capital
B) Profits
C) Capital spending
D) Income taxes
E) All of the above
Q2) The size factor used to adjust the capital asset pricing model serves as a proxy for factors such as smaller firms being subject to higher default risk and generally being less liquid than large capitalization firms.
A)True
B)False
Q3) Did @Home overpay for Excite?
Q4) The variable growth model would be most appropriate for valuing firms in the growth phase of their product life cycle.
A)True
B)False
Q5) What other assumptions might you consider?
Page 10
Q6) What are the limitations of the valuation methodology employed in this case?
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Chapter 8: Relative,asset-Oriented,and Real Option
Valuation Basics
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84 Verified Questions
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Sample Questions
Q1) Micro value drivers are those factors affecting specific functions within the firm.
A)True
B)False
Q2) All of the following are true for market based valuation methods except for which of the following?
A) Assumes that markets are efficient such that current values reflect all the information currently known about the business
B) Current values represent what a willing buyer and seller are willing to pay for a business in the absence of full information
C) Market based methods are always superior to discounted cash flow techniques
D) Include comparable company and recent transactions methods
E) Include the tangible book value approach
Q3) The value of the comparable companies' method may vary widely depending upon when it is calculated in the business cycle.
A)True
B)False
Q4) What method of accounting would Merrill use to show its investment in BlackRock?
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Chapter 9: Applying Financial Models to Value, structure, and Negotiate Mergers and Acquisitions
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Sample Questions
Q1) Common size financial statements are among the most commonly used tools to uncover data irregularities.
A)True
B)False
Q2) Discrepancies between the way a firm records its financial statements and GAAP accounting standards are common and should be ignored.
A)True
B)False
Q3) In calculating the value of net synergy,the costs required to realize the anticipated synergy should be ignored because they are difficult to forecast.
A)True
B)False
Q4) A simple model to project cash flow rarely involves the projection of revenue and the various components of cash flow as a percent of projected revenue.
A)True
B)False
Q5) It what way did the acquisition of Wrigley's represent a strategic blow to Cadbury?
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Chapter 10: Analysis and Valuation of Privately Held Companies
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Sample Questions
Q1) The risk associated with an illiquid market for a specific stock is referred to as the liquidity or marketability risk.
A)True
B)False
Q2) Private firms must file quarterly earnings reports with the Securities and Exchange Commission.
A)True
B)False
Q3) In many countries,family owned firms have been successful because of their shared interests and because investors place a higher value on short-term performance than on the long-term health of the business.
A)True
B)False
Q4) Owners of private businesses attempting to minimize taxes may overstate their contribution to the firm by giving themselves or family members unusually low salaries,bonuses,and benefits.
A)True
B)False
Page 13
Q5) What were the primary reasons Cantel wants to acquire Crosstex? Be specific.
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Chapter 11: Structuring the Deal: Payment and Legal
Considerations
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Acquirer stock is a rarely used form of payment in large transactions.
A)True
B)False
Q2) Such legal structures as holding company,joint venture,and limited liability corporations are suitable only for acquisition vehicles but not post closing organizations.
A)True
B)False
Q3) The tax status of the transaction may influence the purchase price by
A) Raising the price demanded by the seller to offset potential tax liabilities
B) Reducing the price demanded by the seller to offset potential tax liabilities
C) Causing the buyer to lower the purchase price if the transaction is taxable to the target firm's shareholders
D) Forcing the seller to agree to defer a portion of the purchase price
E) Forcing the buyer to agree to defer a portion of the purchase price
Q4) Earn-outs tend to shift risk from the seller to the buyer in that a higher price is paid only when the seller has met or exceeded certain performance criteria.
A)True
B)False
Page 14
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Chapter 12: Structuring the Deal: Tax and Accounting
Considerations
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Sample Questions
Q1) Which of the following is not true of taxable asset purchases?
A) Net operating losses carry over to the acquiring firm
B) The acquiring firm may step up its basis in the acquired assets.
C) The target firm is subject to recapture of tax credits and excess depreciation
D) Target firm shareholders' are subject to a potential immediate tax liability
E) Target firm net operating losses and tax credits cannot be transferred to the acquiring firm
Q2) In a statutory merger,the buyer retains the target's tax attributes.
A)True
B)False
Q3) Since the IRS requires that target shareholders continue to hold a substantial equity interest in the acquiring company,the tax code defines what constitutes a substantial equity interest.
A)True
B)False
Q4) The tax-free structure is generally not suitable for the acquisition of a division within a corporation..
A)True
B)False
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Chapter 13: Financing the Deal: Private Equity, hedge Funds, and
Other
Sources of Funds
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Sample Questions
Q1) An investor group acquired all of the publicly traded shares of a firm.Once acquired,such shares would no longer trade publicly.Which of the following terms best describes this situation?
A) Merger
B) Going private transaction
C) Consolidation
D) Tender offer
E) Joint venture
Q2) In what way do you believe that Sony's objectives might differ from those of the private equity investors making up the remainder of the consortium? How might such differences affect the management of MGM? Identify possible short-term and long-term effects.
Q3) LBO capital structures are often very complex,consisting of bank debt,subordinated unsecured debt,preferred stock,and common equity.
A)True
B)False
Q4) Why would it take five very large financial institutions to finance the transactions?
Q5) Cite examples of economies of scale and scope?
Page 16
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Chapter 14: Highly Leveraged Transactions: Lbo Valuation and Modeling Basics
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Sample Questions
Q1) The expected cost of and probability of occurring of financial distress are easily forecasted.
A)True B)False
Q2) Describe how PI financed the purchase price.Speculate as why each source of financing was selected? How did CK pay for feels incurred in closing the transaction?
Q3) What are the advantages and disadvantages of using enterprise cash flow in valuing CK? In what might EBITDA been a superior (inferior)measure of cash flow for valuing CK?
Q4) Describe the firm's strategy to finance the transaction?
Q5) In discount projected tax savings in the adjusted present value method,the firm's unlevered cost of equity should be used,since it reflects a higher level of risk than either the WACC or after-tax cost of debt.Tax savings are subject to risk comparable to the firm's cash flows in that a highly leveraged firm may default and the tax savings go unused.
A)True B)False
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Q6) Compare and contrast the Cost of Capital Method and the Adjusted Present Value Method of valuation.
Chapter 15: Business Alliances: Joint Ventures, partnerships, strategic Alliances, and Licensing
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113 Verified Questions
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Sample Questions
Q1) Termination provisions in alliances commonly include all but which of the following:
A) Buyout provisions enabling one party to purchase another's ownership interests
B) Predetermined prices at which the buyouts may take place
C) Breakup payments payable to the remaining partners
D) How assets and liabilities will be divided among the partners
E) What will happen to patents and licenses owned by the alliance
Q2) Under a C corporate structure,ownership can be easily transferred,which facilitates raising money.
A)True
B)False
Q3) Describe the operational and managerial challenges facing the two partners.
Q4) Business alliances may represent attractive alternatives to mergers and acquisitions.
A)True
B)False
Q5) Why do you believe Bridgestone chose to invest in Firestone rather than pursue another option?
Page 18
Q6) What other motives may General Motors have had in making this investment?
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Chapter 16: Alternative Exit and Restructuring Strategies:
Divestitures, spin-Offs, carve-Outs, split-Ups, and Split-Offs
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Sample Questions
Q1) Parent firms with a high tax basis in a business may choose to spin-off the unit as a tax-free distribution to shareholders rather than sell the business and incur a substantial tax liability.
A)True
B)False
Q2) Speculate as to why the 2005 restructure program appears to have been unsuccessful in achieving a sustained increase in Sara Lee's earnings per share and in turn creating value for the Sara Lee shareholders?
Q3) AT&T overpaid for many of its largest acquisitions made during the 1990s? How might this have contributed to its subsequent restructuring efforts?
Q4) Was AT&T proactive or reactive in initiating its 2000 restructuring program? Explain your answer.
Q5) Would you expect investors to be better off buying Sara Lee stock or investing in a similar set of consumer product businesses in their own personal investment portfolios? Explain your answer.
Q6) Management may sell assets to fund diversification opportunities? A)True B)False
Page 19
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Chapter 17: Alternative Exit and Restructuring Strategies:
Bankruptcy Reorganization and Liquidation
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Sample Questions
Q1) All of the following are true of the bankruptcy process except for
A) The debtor firm may seek protection from its creditors by initiating bankruptcy or may be forced into bankruptcy by its creditors.
B) When creditors file for bankruptcy on behalf of the debtor firm, the action is said to be involuntary bankruptcy.
C) Once either a voluntary or involuntary petition is filed, the debtor firm is protected from any further legal action related to its debts until the bankruptcy proceedings are completed.
D) The filing of a petition triggers an automatic stay even before the court accepts the request.
E) An automatic stay suspends all judgments, collection activities, foreclosures, and repossessions of property by the creditors on any debt or claim that arose before the filing of the bankruptcy petition
Q2) In what way was the Enron debacle a break down in corporate governance (oversight)? Explain your answer.
Q3) In your judgment,did regulators attenuate or exacerbate the situation? Explain your answer.
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Chapter 18: Cross-Border Mergers and Acquisitions:
Analysis and Valuation
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Sample Questions
Q1) M&A practitioners utilize nominal cash flows except in circumstances of high rates of inflation,when real cash flows are preferable.
A)True
B)False
Q2) Why would rising commodity prices spark industry consolidation?
Q3) An analyst can determine if a country's equity market is likely to be segmented from the global equity market if the ß derived by regressing returns in the foreign market with returns on the global equity market is significantly different from one.
A)True
B)False
Q4) Whenever the target firm's projected cash flows are in local currency,the risk free rate is the local country's government bond rate.
A)True
B)False
Q5) What were the motives for Arcelor's and ThyssenKrupp's interest in Dofasco?
Q6) M&As represent by far the most profitable means of entering foreign markets.
A)True
B)False
Page 21
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