IBA Exec Board
This person has ran a 4:26 mile.
Who is Garrett Schwann?
What happens to COGS in FIFO situations with inflation?
COGS goes down
Name 6 components of total enterprise value.
TEV = Equity Value + Debt + Preferred Stock + Capital Lease Obligations + Unfunded Pension Obligations – NOLs – Cash + Non-controlling interest
Two identical companies. One has debt, the other doesn’t. Which has the higher WACC?
The company without debt has higher WACC because debt is cheaper than equity
An interviewer places three envelopes in front of you and asks you to choose one of them. One of the envelopes includes a job offer, but the other two are filled with rejection letters. You select an envelope from the pile. The interviewer then proceeds to show you the contents of one of the other envelopes, which turns out to be a letter of rejection. The interviewer now provides you with the opportunity to change your envelope selections. Should you make the switch?
yes you would switch
This person has two IG accounts with a combined 110k followers.
Who is Thomas Cornelius?
What happens to the 3 statements when prepaid expenses decrease by 10?
IS: EBT up 10 → NI up 6
CFS: Start at +6 → subtract 10 prepaid expense reduction → net change in cash = –4
BS: Cash down 4, prepaid down 10 → assets down 14; NI up 6 → equity up 6 → L+SE down 8 → balanced
Buyer pays $100M for seller in all-stock deal, but market values it at $50M. What happens?
Buyer’s share price drops to reflect $50M value loss.
Does Revenue, COGS, or Capex impact a DCF the most?
Capex, then COGS, then Revenue.
How do you make 8 slices of cake with only 3 cuts?
two crossed on top, one in half
Which IBA Exec member loves to travel.
Who is Thomas Cornelius?
If I switch from FIFO to LIFO, how does this affect the income statement if there is inflation?
a. Inflation will increase COGS
b. If selling price increases by full amount then costs increase
c. FIFO will report more GP, NI, PTI, taxes and inventory than LIFO
d. COGS will decrease for FIFO
e. COGS will increase for LIFO
Why do we add Preferred Stock to get to Enterprise Value?
Preferred Stock pays out a fixed dividend, and preferred stock holders also have a higher claim to a company’s assets than equity investors do. As a result, it is seen as more similar to debt than common stock.
What determines how much a line item will affect a DCF?
Distance from the FCF line.
What is systemic risk?
Risk related to the overall market
Who is Evelyn Huang?
What happens to the financial statements if amortization of goodwill increases $10?
Trick question, can't amortize goodwill. Would be tested for impairment / recorded as a write-down.
Company has 10,000 shares at $20; 100 options at $10 strike, 50 RSUs, 100 convertible bonds (par = $100, conversion price = $10)
Options: 100 exercised → $1000 proceeds → repurchase 50 shares → net +50 shares
RSUs: +50 shares
Convertibles: 100 bonds × (100/10) = 1000 shares
Total new shares = 50 + 50 + 1000 = 1100
Diluted shares = 10,000 + 1100 = 11,100 → equity value = 11,100 × 20 = 222,000
Why do you unlever and relever beta when calculating it from comps?
a. Public betas are already levered to their capital structures
b. Unlevering normalizes for differences in debt-to-equity
c. Relever to apply an appropriate capital structure to your target company
In what cases do you see customers paying upfront in cash but companies not recording the cash as revenue?
Web-based subscription software
Annual contracts for cell phones
Subscriptions generally
This IBA member has a YouTube account with 300k followers.
Who is Hannah Song?
What is the difference between a Deferred Tax Liability and Income Tax Payable?
a. An income tax payable is a tax from normal operations
b. A DTL is the difference between cash vs. tax schedule on depreciation
Company A has revenue of $100mm, Company B has revenue of $100mm. When Company A acquires Company B, revenues become $300mm, with no revenue synergies. How is this possible?
a. Two minority positions consolidate into a majority, changing accounting treatment so that all of the third company's revenue is consolidated on the pro forma balance sheet
b. Company A and B both own 40% of Company C
How do you calculate the preferred stock % in WACC?
a. Look up dividends paid to preferred holders in 10-K
b. Calculate total preferred stock value in capital structure
c. Cost = dividend / preferred share price
Why would a company with positive EBITDA over the past 10 years go bankrupt?
The company spends too much on CapEx which is not reflected in EBITDA
The company has high interest expense and cannot afford its debt
The company’s debt all matures on one date and can’t be refinanced, so it runs out of money
The company has significant one-time charges from settlements, for example