Finance (none)

Reading Quiz Chapter 16,17,18 Name__________________

Please answer the following questions:

1. Assume that you built a valuation model for Chipotle Mexican Grill. How would you test to see if your model results are consistent with industry economics? Be specific.

1. Should the modeler test his or her model by making large changes in key variables or small changes in key variables? Why?

1. The authors say, to verify the valuation results we should test to see if the resulting valuation is in line with market value if the stock is actively traded. Give one reason why this is a good suggestion and another reason why this may not be a good suggestion.

1. Assume that you built a valuation model for Chipotle Mexican Grill, and you are putting together a plausible potential scenario for Chipotle. This scenario should reflect the different assumptions regarding future macroeconomic conditions, industry conditions, business developments, as well as the corresponding strategic responses by others in the industry. Please take a few sentences to write in words such a scenario for Chipotle.

1. To improve a multiple, should we use historical ratios or forward-looking ratios? Why?

1. What weakness does the price to earnings multiple have that the Enterprise Value to EBITA multiple does not have? Explain.

1. What is the difference between sensitivity analysis and scenario analysis?

1. Per the authors, should treasury stock be treated as an investment asset or as a reduction in the number of shares outstanding? Pick one.