1. Among the following statements, only 3 are correct with respect to corporate valuations. Identify which ones.
a) There are several potential values for a single company
b) Valuation combines business and financial analysis, as well as the use of valuation methodologies
c) The value of a company with stable earnings does not change over time
d) Valuation is only based on future earnings projections, one does not take into account current or historical performance at all
2. Which of the following statements are correct with respect to corporate valuations (there may be more than one correct answer to this question)?
a) Corporate valuation is based solely on historical financial performance
b) Enterprise value is the value attributable to both debt and equity holders
c) The DCF methodology uses a cost of capital which reflects the average required return rate to all capital providers (debt and equity)
3. Which of the following statement is correct with respect to corporate valuations?
a) The market value of a share can be derived from the enterprise value, the net financial debt and number of shares of a company
b) The enterprise value of a company is the value attributable to its shareholders
c) A company's value is the same for all
d) The market value of a company can be found in its financial statements
4. Among the following statements, only 3 are correct. Identify which ones.
a) The market value of a company depends on its past earnings
b) Growth in future earnings has an impact on the value of a company's stock
c) Investors are more focused on cash flows than profit when valuing a company's stock
d) Qualitative factors may impact the value of a company's stock
e) The DCF valuation methodology relies on cash flow forecasts
5. Complete this sentence: "A company’s enterprise value is equal to _________ _________ value, plus ________ financial liabilities".
a) the sum of ; all assets ; net
b) total asset ; plus cash ; current
c) the sum of ; equity ; net
d) total asset ; equity ; current
e) the sum of ; equity ; all
6. Which of the following statements are correct with respect to the market value of equity (MVE)? There may be more than one correct answer to this question.
a) MVE is equal to the sum between enterprise value and net financial liabilities
b) MVE is the same as shareholders’ funds in a company’s balance sheet
c) MVE can be calculated as the company’s share price multiplied by the number of shares outstanding
d) MVE is equal to enterprise value less net financial liabilities
7. Among the following statements about valuation multiple, only 3 are correct. Identify which ones.
a) The price earnings ratio analysis compares the enterprise value of a company to its EBITDA
b) The price earnings ratio analysis compares the enterprise value of a company to its net income
c) The price earnings ratio analysis compares the market value of equity of a company to its net income
d) The price earnings ratio analysis compares the share price to the earnings per share
e) The price earnings ratio analysis provides an indication as to the expected growth in earnings per share
8. Which of the following statements are correct with respect to the discounted cash flow (DCF) analysis? There may be more than one correct answer to this question.
a) The DCF analysis relies upon discounting projected unlevered free cash flows to estimate the enterprise value of a company
b) The DCF analysis relies upon discounting projected company’s cash flows to estimate the market value of equity of a company
c) The DCF analysis only considers a defined projection period
d) The DCF analysis considers a defined projection period as well as a terminal value
9. Sunshine Lodging Inc. (SLI) is a Florida-based hotel resort with the following projected unlevered free cash flows (UFCFs) for the next 5 years, given in USD million: Year1: 12.0 ; Year2: 13.8 ; Year3: 14.9 ; Year4: 16.5 ; Year 5: 18.0. After year 5, UFCFs are projected to grow at an annual rate of 5%. The company’s weighted average cost of capital stands at 8% per annum. Estimate the enterprise value of SLI based on the DCF methodology.
a) USD 468 million
b) USD 472 million
c) USD 488 million
d) USD 493 million
10. Assume SLI has an enterprise value of USD 500 million, excess cash of USD 14 million, pension deficit of USD 8 million, tax liabilities of USD 4 million and financial liabilities of USD 68 million. Calculate its total equity value.
a) USD 406 million
b) USD 434 million
c) USD 566 million
d) USD 594 million
11. Assume SLI has 20 million shares outstanding and 5 million stock options (each option gives a right to one share). Calculate the estimated share value if its market value of equity stands at USD 400 million.
a) USD 20.00
b) USD 20.25
c) USD 16.00
d) USD 26.67
12. You have been supplied with the following data for 2 comparable hotel companies (A and B):Company A: Share price: $30; Current EPS: $2; Projected EPS: $3 // Company B: Share Price: $50; Current EPS: $2.5; Projected EPS: $4. Three of the statements below are correct, which ones?
a) A trades on a greater PE multiple than B
b) B trades on a greater PE multiple than A
c) The EPS of A is projected to grow faster than the EPS of B
d) The EPS of B is projected to grow faster than the EPS of A
e) A is more expensive than B in terms of valuation
f) B is more expensive than A in terms of valuation
Answer 1: All three are ture except last option d. Valuation is only based on future earnings projections, one does not take into account current or historical performance at all
Answer 2: The correct option is c) The DCF methodology uses a cost of capital which reflects the average required return rate to all capital providers (debt and equity)
Answer 3: The correct option is b) The enterprise value of a company is the value attributable to its shareholders
Answer 4: The correct options are b, c and e.
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