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1 Which of the following best describes a best efforts underwriting commitment? Underwriter commits to selling as much of the issue as possible at the agreed-on offering price but can return any unsol
1
Which of the following best describes a best efforts underwriting commitment?
Underwriter commits to selling as much of the issue as possible at the agreed-on offering price but can return any unsold shares to the issuer without financial responsibility.
Underwriter is only responsible for half (50%) of the issue.
The underwriter agrees to buy the entire issue and assume full financial responsibility for any unsold shares.
If the entire issue cannot be sold at the offering price, the deal is called off and the issuing company receives nothing.
2
Free Cash Flow
100
Growth rate
2%
Tax Rate
1%
Cost of Capital
5%
Debt-to-total value
50%
Given the data in the above table, what is the terminal value of the business (using the growing perpetuity formula)?
3600
3000
3366
3400
3
Cash
100,000
Debt
60,000
Tax Rate
10%
Discount Rate
6%
Enterprise Value
500,000
Perpetual Growth Rate
4%
Given the data in the above table, calculate market capitalization of this hypothetical company.
$400,000
$540,000
$460,000
$100,000
4
Cost of Equity
5%
Cost of debt
7%
Debt-to-equity ratio
1.5
Given the data in the above table, what is the weighted average cost of capital of this company?
4.0%
6.2%
5.9%
3.7%
5
Which of the following companies has the lowest degree of leverage?
20% Debt, 80% Equity
90% Debt, 10% Equity
50% Debt, 50% Equity
30% Debt, 70% Equity
6
Which of the following statements is correct?
Financial buyers are operating partners that try to create synergies.
Financial buyers are institutions that provide capital and are not operators.
Strategic buyers are institutions that provide capital and are not operators.
Strategic buyers are asset managers that are trying to time the purchase or sale of a business.
7
Which of the following is the correct ordering of the capital stack (from most secure to least secure)?
Senior debt -> Equity -> Subordinated debt
Senior debt -> Subordinated debt-> Equity
Subordinated debt -> Senior debt -> Equity
Equity -> Subordinated debt -> Senior debt
8
Which of the following debt repayment profiles involves a growing principal amount over time?
Pay in kind debt
Senior Debt
Mezzanine finance
Equity
9
Which of the following statements about capital structure are correct? Select ALL correct answers.
A company should always finance its business using as much debt as possible in order to optimize the capital structure.
Having too little debt may increase the risk of default in repayment.
Having too much equity may dilute earnings and the value of the original investors.
A company needs to consider the current economic climate when making decisions on debt and equity proportions.
10
Which of the following is NOT a form of subordinated debt?
Payment-In-Kind Notes
High yield bonds
Revolver
Vendor Notes
11
Which of the following best describes a leveraged buyout fund’s acquisitions?
Investing in foreign businesses
Investing in mid-sized businesses
Investing in mature businesses
Investing in early stage businesses
12
Which of the following are examples of institutional investors? Select ALL correct answers.
High net worth individuals
Private equity firms
Mutual funds
Companies that are publicly traded on stock exchanges
13
Which of the following is not a function of public accounting firms?
Audit
Financial Planning & Analysis
Due dilligence
Transaction Advisory
14
Which of the following M&A transaction equations is correct?
Value created = Stand-alone value + Net synergies – Consideration (price paid)
Value created = Hard synergies + Soft synergies – Transaction costs
Value created = Stand-alone value + Net synergies – Transaction costs
Value created = Consideration (price paid) + Net synergies – Transaction costs
15
What should a company do if it wants to reduce the number of shares outstanding?
Issue more debt
Invest in more projects
Pay cash dividends
Repurchase shares
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