Maximum Ellis
How do you calculate terminal value? (Both Methods)
Exit Multiple Method: Final year EBITDA*(EV/EBITDA)
Perpetuity Growth Method: Final year FCF * (1+PGR) / (discount rate - PGR)
Kilroy's has an EV/Revenue of 2x and an EV/EBITDA of 10x, what is its EBITDA margin?
20% EBITDA Margin
Walk me through $40 of depreciation on all 3 financial statements with a 20% tax rate
IS: $40(1-.2), Net income down $32
CF: NI -32
DA +40
Net change in cash: $8
BS: Cash up $8
PP&E -$40
Net Change $-32 balances with SE-$32
What is the recently reported inflation figure relative to a year ago?
8.5%
What are the four primary valuation methodologies, their typical order from highest to lowest valuation, and the reason for the order?
Precedent Transactions: Control Premium, Synergies
DCF: Management Optimism
Comparable Companies: Liquidity Premium
LBO: Financial Sponsor perspective, minimal premiums/synergies
What is EBITDA a proxy for? EBIT?
EBITDA is a proxy for free cash flow. EBIT is a proxy for operating income
Calculate levered Beta for a private company with a target capital structure comprised of $200M in mezzanine debt and $800M in equity based on the following peers, their asset betas, and a tax rate of 40%
Company A: 3.4, Company B: 2.5, Company C: 2.1, Company D: 4.0
3.45 Levered Beta
Peer average: Unlevered beta of 3
Re-lever at 25% target D/E
3*(1+(1-0.4)*(0.25)=3.45 Levered Beta
Talk me through a football field analysis, how we create it, what it tells us?
The football field analysis provides insight on the proper value of a given entity through various valuation methods (comps, precedent transactions, dcf...). These are typically used as guiding indicators in determining a final transaction valuation.
Within $10M, what value did Elon Musk price Twitter at in his proposal to acquire the company?
$41.4Bn
The EV / EBIT, EV / EBITDA, and P / E multiples all measure a company’s profitability. What’s the difference between them, and when do you use each one?
P / E depends on the company’s capital structure whereas EV / EBIT and EV / EBITDA are capital structure-neutral. Therefore, you use P / E for companies where interest payments / expenses are critical.
EV / EBIT includes Depreciation & Amortization whereas EV / EBITDA excludes it – you’re more likely to use EV / EBIT in industries where D&A is large and where capital expenditures and fixed assets are important (e.g. manufacturing), and EV / EBITDA in industries where fixed assets are less important and where D&A is comparatively smaller (e.g. Internet companies).
What is a deferred tax asset? A deferred tax liability?
A deferred tax asset is a future benefit that typically results from negative net income (GAAP tax expense>Tax payable under IRS cash accounting)
A deferred tax liability is a future tax expense typically arising from accelerated depreciation under IRS cash accounting and slower depreciation on GAAP books (GAAP tax expense<IRS tax payable)
Calculate LFCF and UFCF?
EBITDA: 150 EBIT:100 Capital Expenditures: 25
Mandatory Principal Repayments: 25 Non-controlling interest:200 Cash on hand:15
Prior Period NWC: 10 Current Period NWC:15
Tax Rate:40%
UFCF:EBIT(1-T)+DA-capex-increase in NWC
100*(1-.4)+50-25-5=$80 UFCF
-$25 =$55 LFCF
Assuming a 30% tax rate, walk me through how all 3 financial statements are affected by a $20 decrease in Deferred Revenue
IS: $20*(1-.3)=$14 increase to net income
CF: NI + $14
D/R -$20
Net Change in Cash + $6
BS: Cash up $6
Deferred revenue (Liability) account -$20
Net change of $14 balances with increase in SE of $14
What milestone occurred yesterday regarding the 10-year treasury yield?
The yield rose to its highest point in three years to 2.827%
Answer the below questions given the following:
Sales are $1Bn, EBITDA Margin: 25%
EBITDA multiple 8x
700m senior debt
400m unsecured debt, the remainder is equity
1) What is equity value?
2) EBITDA Margin declines to 15% in a given year and you receive an offer to sell unsecured debt for $450M, all else fixed, does it make mathematical sense to sell?
1)$100M Equity Value
2) $450M>$400M, therefore, it generally makes sense to sell
.15*$1Bn=150M*8=$1.2Bn EV - $700M secured debt - $100M equity = $400M value for unsecured debt
A company with a P/E of 23 uses 100% equity to buy a company with a P/E of 18. Is this accretive or dilutive?
Accretive; the acquirer is essentially paying less for each dollar of earnings than the market values its own earnings and will therefore be able to issue proportionally fewer shares to finance the transaction.
Earnings will increase proportionally more than share count, resulting in EPS accretion.
Calculate Equity Value given the following:
EV/EBITDA from comparable universe: 4X
Target EBITDA: 2,000,000 Total Debt: 2,000,000 NCI: 500,000
Cash: 1,000,000 Investments in liquid securities: 700,000
$7.2M
Sibley’s Spaghetti is buying $100 worth of new pasta-making equipment with debt. Walk me through how all 3 financial statements are affected:
*Assume no principal is paid off, an interest rate of 10%, and the equipment depreciates at a rate of 10% per year.
Tax rate= 40%
At the start of Year 1 before anything else happens?
At the start of Year 2 ?
Beginning of year 1: No change on IS,
CF: +100 financing inflow, -100 investing outflow (PPE) - No net change in cash
BS: $100 increase in PP&E, $100 increase in notes payable (liability)
Start of year 2:
IS -$10 interest expense -$10 depreciation expenses
-$20*(1-.4) = Net income down $12
CF: NI -12
DA +10
Change in Cash: -$2
BS: PPE -$10
Cash $-2
-$12 balances with change in Stockholders’ Equity -$12
As of April 1st, which bank is leading in deal volume (number of deals) year-to-date 2022?
Goldman Sachs with 77 announced deals
Calculate MOIC and IRR:
Year 0-$500 revenue growing at 10% per year
EBITDA Margin - Constant 20%
Entry Multiple: 10X EBITDA
4X DEBT/EBITDA
Exit at 10X EBITDA at the conclusion of year 5, servicing all debt at the end of the holding period
MOIC=1210.51/600 = 2.017
IRR=15.07%
Entry EV: 1000
Entry Debt: 400
Entry Equity: 600
Terminal Year EBITDA: 161.051
Exit EV=1610.51 less debt of 400
Exit equity of 1210.51
Determine if the following transactions is accretive or dilutive, and by how much.
Company A is acquiring Company B
Company A: Share Price $30 2,000,000 shares out.
NI: $5,000,000
Company B:250,000 shares out.
NI:$375,000
Transaction info: 60% Equity 30% Debt 10% cash
Price: $15/share $600,000 after-tax hard synergies
Pre-tax cost of debt:4%
Interest on cash reserves:2% Tax rate 20%
Accretive by ~$0.36, $2.86 Pro Forma EPS vs. $2.50 standalone EPS
Calculate pro forma goodwill created from the following:
Market Cap: 1000 Purchase Premium:30%
Book Value of Equity: $1000 Existing Goodwill: $500
10% tangible asset write-up
5% intangible asset write-up
Tax Rate 20%
$704 of Goodwill Created
Equity Purchase Price: $1300
Book Value-Existing Goodwill= $500 net identifiable assets
1300-500=$800 allocable premium
800*.1=80 tangible asset WU
800*.5=40 intangible WU
120*.2= 24 DTL
800-80-40+24=$704 of goodwill created
Walk me through two ways the three financial statements are linked.
Various Approaches:
Net income on income statement to statement of cash flow to cash on balance sheet and SE.
Through an account: Depreciation flows from PP&E on balance sheet to an expense on IS added back to NI to calculate cash flow from operations on statement of cash flows.
30-year mortgages just exceeded this national average rate in the fastest pace increase since 1994
5%
Hoosier Hotels has 10,000 shares outstanding currently trading at $20 per share.
There are 100 options with an exercise price of $10
50 vested RSUs
100 bonds convertible at price of $10 with a par value of $100. Calculate equity value using fully diluted shares outstanding
11,100*$20=$222,000
Options: are in the money, 100 new shares less ($1000/20)=50 shares repurchased, net change + 50 shares out.
Vested RSUs + 50 shares out
Convertibles:($100/10)*100= +1,000 shares out
Fully Diluted Shares out = 1,100+10,000 =,11,100