Corp Finance Bananza

CFA Level II
#41

definitely A

#42

#6 is A. That’s an easy one. #7 Felix Hernandez is evaluating a prospective merger between two firms of relatively equal size. The acquirer is planning to borrow the entire purchase price and pay for the merger in cash. Which method of estimating the target’s intrinsic value and potential merger synergies is likely to be most useful? A) Comparable company analysis because the values are market-based. B) Comparable transaction analysis because he will not need to estimate the takeover premium. C) Comparable company analyses because the assumption that similar assets should have similar values is fundamentally sound. D) Discounted cash flow analysis because it will allow him to incorporate changes in the capital structure and cost of capital that are likely to result from the way the acquirer intends to raise the funds to pay for the target.

#43

d

#44

D?

#45

leaning towards D…

#46

This is the last question I will post. What are you reasonings?

#47

I don’t use reasoning.

#48

ignore…

#49

They’re equal size so they’d be strapping on a whole wack 'o debt which could throw off comparable company and there was no mention of other transactions in the question.

#50

I just assume that if you’re using cash, not only is your WACC going to change considerably, but you’re assuming the entire risk of the synergies not materializing, so your focus should be on developing a layout of expected future cash flows and discovering whether the intrinsic value using that method falls within the price you’re paying. Since you hold all the risk, ability to meet incurred interest payments etc is your first priority. You shouldn’t care what the market is saying, you should only be willing to pay what you expect to recieve in this transaction. Plus comparable transactions and company values usually result from mixed financing and will not be as comparable to what you are doing with a LBO.

#51

D is correct. And his reasoning is suspiciously accurate. Almost too accurate.

#52

It’s the pink shirt man, its been dishing out sweet mojo all day

#53

swan - the professor - strikes again…