1 Ginormous Oil entered into an agreement to purchase all of the outstanding shares of Slick Company for $60 per share. The number of outstanding shares at the time of the announcement was 82 million. The book value of liabilities on the balance sheet of Slick Company was $1.46 billion. What was the cost of this acquisition to the shareholders of Ginormous Oil?Multiple Choice
- $1.46 billion
- $3.46 billion
- $4.92 billion
- $6.38 billion
- $8.38 billion
- None of the options are correct.
2. Ginormous Oil entered into an agreement to purchase all of the outstanding shares of Slick Company for $60 per share. The number of outstanding shares at the time of the announcement was 82 million. The book value of liabilities on the balance sheet of Slick Company was $1.46 billion. Immediately prior to the Ginormous Oil bid, the shares of Slick Company traded at $33 per share. What value did Ginormous Oil place on control of Slick Company.?Multiple Choice
None of the options are correct.
$2.21 billion
$2.71 billion
$4.17 billion
$6.38 billion
3. Which of the following statements are correct?
- Going-concern value of a firm is equal to the present value of expected net income.
- When a buyer values a target firm, the appropriate discount rate is the buyer’s weighted-average cost of capital.
- The liquidation value estimate of terminal value usually vastly understates a healthy company’s terminal value.
- The value of a firm’s equity equals the discounted cash flow value of the firm minus all liabilities.
Multiple Choice
None of the options are correct.
2 only
3 only
1 and 2 only
2 and 3 only
2, 3, and 4 only
4. Which of the following statements are correct?
- Going-concern value of a firm is equal to the present value of expected future cash flows to owners and creditors.
- When an acquiring firm purchases a target firm’s equity, the acquirer need not assume the target’s liabilities.
- The market value of a public company reflects the worth of the business to minority investors.
- The fair market value of a business is always the higher of its liquidation value and its going-concern value.
Multiple Choice
None of the options are correct.
1 and 3 only
2 and 4 only
2 and 3 only
1, 2, and 3 only
2, 3, and 4 only
5. The following table presents forecasted financial and other information for Havisham Industries:
| 2019 | 2020 | 2021 | |
|---|---|---|---|
| Projected EBIT | $ 317 | $ 339 | $ 363 |
| Earnings after tax | 197 | 210 | 225 |
| Free cash flow | 135 | 144 | 155 |
| Havisham’s WACC | 8.2% | ||
| Expected growth rate in FCFs after 2021 | 4.0% | ||
| Warranted MV firm/FCF in 2021 | 19.4 | ||
| Warranted P/E in 2021 | 18.7 |
What is an appropriate estimate of Havisham’s terminal value as of the end of 2021 using the perpetual-growth equation as your estimate?Multiple Choice
None of the options are correct.
$161 million
$363 million
$3,690 million
$3,889 million
$5,357 million
6. The following table presents forecasted financial and other information for Havisham Industries:
| 2019 | 2020 | 2021 | |
|---|---|---|---|
| Projected EBIT | $ 317 | $ 339 | $ 363 |
| Earnings after tax | 197 | 210 | 225 |
| Free cash flow | 135 | 144 | 155 |
| Havisham’s WACC | 8.2% | ||
| Expected growth rate in FCFs after 2021 | 4.0% | ||
| Warranted MV firm/FCF in 2021 | 19.4 | ||
| Warranted P/E in 2021 | 18.7 |
What is an appropriate estimate of Havisham’s terminal value as of the end of 2021 using a warranted price-to-earnings multiple as your estimate?Multiple Choice
None of the options are correct.
$225 million
$3,833.0 million
$4,207.5 million
$4,365.0 million
$6,788.1 million
7. The following table presents forecasted financial and other information for Havisham Industries:
| 2019 | 2020 | 2021 | |
|---|---|---|---|
| Projected EBIT | $ 317 | $ 339 | $ 363 |
| Earnings after tax | 197 | 210 | 225 |
| Free cash flow | 135 | 144 | 155 |
| Havisham’s WACC | 8.2% | ||
| Expected growth rate in FCFs after 2021 | 4.0% | ||
| Warranted MV firm/FCF in 2021 | 19.4 | ||
| Warranted P/E in 2021 | 18.7 |
What is an appropriate estimate of Havisham’s terminal value as of the end of 2021 using a warranted multiple of free cash flow as your estimate?Multiple Choice
None of the options are correct.
$155 million
$2,898.5 million
$3,007.0 million
$4,365.0 million
$7,042.2 million
8. Atmosphere, Incorporated has offered $860 million cash for all of the common stock in ACE Corporation. Based on recent market information, ACE is worth $710 million as an independent operation. For the merger to make economic sense for Atmosphere, what would the minimum estimated present value of the enhancements from the merger have to be?Multiple Choice
None of the options are correct.
$0
$75 million
$150 million
$710 million
$860 million
9. Consider the following premerger information about a bidding firm (Buyitall Incorporated) and a target firm (Tarjay Corporation). Assume that neither firm has any debt outstanding.
| Buyitall | Tarjay | |
|---|---|---|
| Shares outstanding | 1,500 | 1,100 |
| Price per share | $ 32 | $ 26 |
Buyitall has estimated that the present value of enhancements that Buyitall expects from acquiring Tarjay is $2,600. What is the NPV of the merger assuming that Tarjay is willing to be acquired for $28 per share in cash?Multiple Choice
None of the options are correct.
$400
$600
$1,800
$2,200
$2,600
10. Based on the actual financial data for 2010 and projections for 2011 for Blue Scholar Learning (BSL), as shown below, what is BSL’s projected free cash flow (in $ millions) for 2011?
| Blue Scholar Learning, Incorporated (BSL) | ||||||
| 5-year Financial Projection | ||||||
| ($ millions) | ||||||
| Income Statement | ||||||
|---|---|---|---|---|---|---|
| Net sales | 1,996 | 2,267 | 2,508 | 2,827 | 3,138 | 3,571 |
| Cost of sales | 644 | 742 | 830 | 959 | 1,087 | 1,241 |
| Gross income | 1,352 | 1,525 | 1,678 | 1,868 | 2,051 | 2,330 |
| Depreciation | 492 | 785 | 1,061 | 1,301 | 1,009 | 917 |
| Interest expense | 171 | 178 | 191 | 175 | 142 | 110 |
| Operating expenses | 212 | 239 | 270 | 306 | 334 | 374 |
| Net income before tax | 477 | 323 | 156 | 86 | 566 | 929 |
| Provision for taxes | 186 | 126 | 61 | 34 | 221 | 363 |
| Net income after tax | 291 | 197 | 95 | 52 | 345 | 566 |
| Balance sheet | ||||||
| Total current assets | 1,121 | 1,234 | 1,412 | 1,650 | 1,923 | 2,179 |
| Gross property and equipment | 4,180 | 5,149 | 6,410 | 7,449 | 8,200 | 9,016 |
| Accumulated depreciation | 868 | 1,654 | 2,714 | 4,015 | 5,024 | 5,941 |
| Net property and equipment | 3,312 | 3,495 | 3,696 | 3,434 | 3,176 | 3,075 |
| Goodwill | 1,069 | 1,069 | 1,069 | 1,069 | 1,069 | 1,069 |
| Total assets | 5,502 | 5,798 | 6,177 | 6,153 | 6,168 | 6,323 |
| Accounts payable | 104 | 77 | 91 | 110 | 117 | 135 |
| Short-term debt | 335 | 482 | 842 | 814 | 585 | 393 |
| Current portion long-term debt | 41 | 140 | 165 | 200 | 223 | 267 |
| Accrued expenses | 86 | 97 | 120 | 134 | 174 | 168 |
| Total current liabilities | 566 | 796 | 1,218 | 1,258 | 1,099 | 963 |
| Long-term debt | 1,694 | 1,554 | 1,389 | 1,189 | 966 | 699 |
| Deferred taxes | 335 | 334 | 370 | 454 | 505 | 496 |
| Shareholders’ equity | 2,907 | 3,104 | 3,200 | 3,252 | 3,598 | 4,165 |
| Total liabilities and equity | 5,502 | 5,798 | 6,177 | 6,153 | 6,168 | 6,323 |
Multiple Choice
None of the options are correct.
−$938
−$792
−$7
$122
$1,091
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