Online Midterm Flashcards
(338 cards)
1
Q
3 schools of ethical thought
A
1) consequences
2) duty or intentions
3) virtues
2
Q
Ethical school: consequences
2
A
1) Utilitarianism for society
2) concerns for violation of rights of those not in majority
3
Q
Utilitarianism for society, define
A
Greatest good for greatest number of people
4
Q
For ethical school consequences you need to figure out who is…
A
Hurt/helped
5
Q
How is the ethical school of thought: consequences evidenced?3
A
1) government policies
2) consumer behavior
3) investor behavior
6
Q
Ethical school or thought: Duty or intentions, define
A
Act by rules you require to be applied universally
7
Q
Duty or intentions: people should be treated as an end not a means
A
Treat people with mutual respect
8
Q
Ethical school: duty or intentions views profits as a consequence of…
A
Good business practices (rather than goal of business)
9
Q
Ethical school of thought: virtues define
A
Qualities/values of an actor
10
Q
Warren Buffett on measuring virtues, what is his quote?
A
Everything you do can be reported on the front page of your local paper
11
Q
Economist Milton Friedman in 1962 advocated a stockholder focus creates a clear objective…
A
Increase shareholder wealth
12
Q
Economist Milton Friedman: increasing shareholder wealth limits…
A
Firm’s social responsibility
13
Q
Milton Friedman: anything else expropriated wealth/…
A
Threatens existence
14
Q
BoD
A
Board of directors
15
Q
Milton Friedman: price function can be…
A
Impaired
16
Q
Economist Milton Friedman: increase in shareholder wealth is a viewpoint consistent with…2
A
Board of directors responsibilities
In US and UK
17
Q
Stakeholder viewpoint: Philosopher Edward Freeman in 1984 advocated in addition to stockholders consider…4
A
1) employees
2) customers
3) suppliers
4) the community
18
Q
Stakeholder viewpoint Edward Freeman:
BoD, CEO and managers should be aware of…
A
Broader spectrum of parties (stakeholders)
19
Q
Stakeholder viewpoint Edward Freeman:
Challenging and…
A
Slow decision making
20
Q
Stakeholder Viewpoint Edward Freeman:
Why does dealing with stakeholders involve challenging and slow decision making?
A
Often not clear at all whose interests dominate
21
Q
Types of M&A profitability 3
A
1) weak form
2) semistrong form
3) strong form
22
Q
M&A profitability:
Weak form
A
Pafter>Pbefore. Where P= share price
Hard to attribute to transaction but widely used
23
Q
M&A profitability:
Semistrong form
A
%RM&A Firm > %Rbenchmark where R = return on shares
Depends upon using good benchmark and size of sample
24
Q
M&A profitability:
Strong Form
A
%Rfirm w M&A > %Rfirm wo M&A. Where R = return on shares
Good in theory but unobservable
25
4 types of research methods Bruner cites with regard to measuring M&A profitability. 4
1 event studies
2 accounting studies
3 surveys of executives
4 clinical studies
26
Research method to measure M&A profitability:
Event studies 4
1) abnormal return
2) forward looking price
3) assumptions about efficient stock market
4) direct measure
27
Abnormal return equation
Abnormal return =
| raw return - benchmark on announcement day (S&P or CAPM)
28
Forward looking price = ...
Forward looking price = PV of future cash flows
29
Research method to measure M&A profitability:
Accounting studies 2
1) estimated returns of financial reports
| 2) backward looking
30
Accounting studies are credible from...
Audited returns
31
Accounting studies pose problems when there are...
Differences in accounting
32
Accounting studies measure...
Indirectly
33
Research method to measure M&A profitability:
Surveys of executives 3
1) standardized questionnaires
2) insights not otherwise known
3) intimate familiarity
34
Potential flaws of surveys of executives...2
1) may be biased
Or
2) hazy recollection
35
Accounting studies: drivers of profitability 12 (no need to memorize, refer to next flash cards)
1 synergies are important
2 valuing a acquiring pays, glamour doesn't
3 restructuring pays
4 acquiring market power doesn't pay
5 using stock is costly, cash is neutral
6 returns vary with time
7 M&A regulation costly
8 Laws/property rights matter in cross border deals
9 M&A just to use cash usually destroys value
10 Tender offers create value for bidders
11 managers have a stake, more value created
12 Announcement of buyer program creates value
36
Accounting studies: drivers of profitability:
Synergies are...
Important
37
Accounting studies: drivers of profitability:
Value acquiring...
Glamour...
Value acquiring pays
Glamour doesn't
38
Accounting studies: drivers of profitability:
Restructuring...
Pays
39
Accounting studies: drivers of profitability:
Acquiring market power...
Doesn't pay
40
Accounting studies: drivers of profitability:
Using stock is...
Cash is...
Using stock is costly
Cash is neutral
41
Accounting studies: drivers of profitability:
Returns vary with...
Time
42
Accounting studies: drivers of profitability:
M&A regulation is...
Costly
43
Accounting studies: drivers of profitability:
Laws/property rights matter in...
Cross border deals
44
Accounting studies: drivers of profitability:
M&A just to use cash usually...
Destroys value
45
Accounting studies: drivers of profitability:
Tender offers, what do they do for the bidders?
Create value for bidders
46
Accounting studies: drivers of profitability:
When managers have stake...
More value is created
47
Accounting studies: drivers of profitability:
Announcements of a buyer program...
Creates value
48
How many waves were there in M&A history? From what time period?
5 waves from 1895 to 2000
49
What was the date of wave 1?
1895-1904
50
What was the date of wave 2?
1925-1929
51
What was the date of wave 3?
1965-1970
52
What was the date of wave 4a?
1981-1987
53
What was the date of wave 4b?
1992-2000
54
Wave 1 (1895-1904) how was this wave characterized?
Horizontal mergers for market power
55
Wave 1 (1895-1904) Horizontal mergers for market power consisted of overcapacity due to...
Technological innovation
56
Wave 1 1895-1904
Major companies 5
```
1 DuPont
2 Standard Oil
3 GE
4 Eastman Kodak
5 US Steel
```
57
Wave 2 1925-1929, how was this wave characterized...2
1 vertical mergers
2 for supply and distribution
58
Wave 2 was characterized by mergers for the purpose of...
Oligopoly
59
Wave 2 ended with what legislative act?
Clayton Act
60
Wave 2, primary industry where these mergers occurred?
Public utilities
61
What ended wave 2?
Stock market crash in 1929
62
Wave 3 1965-1970, this wave was characterized by...
The rise of the conglomerate
63
During wave 3 (1965-1970) regulation limited...
What did this cause?
Horizontal mergers
Therefore companies diversified
64
Wave 3 (1965-1970) concentrated among...
Oil companies/conglomerates
65
How was the economy/stock market characterized during wave 3 (1965-1970)?
Strong economy and bull market
66
Wave 3 (1965-1970) ended with what type of legislative enforcement?
Antitrust enforcement
67
Wave 4a 1981-1987 was characterized by...
Going private
68
Wave 4a saw the rise of...
The LBO/hostile takeovers
69
Wave 4a (1981-1987) what was occurring in the financial services industry?2
1 more leverage
2 capital markets innovation
70
Wave 4a (1981-1987) what economic and stock market activity was occurring during this period?
Falling interest rates/rising stock prices
71
Wave 4b (1992-2000) how was this wave characterized?
Emergence of strategic buyer
72
Wave 4b was characterized by synergy among...
Related business
73
Wave 4b (1992-2000) what 5 industries did this primarily occur?
```
1 healthcare
2 tech
3 defense
4 financial services
5 oil and gas
```
74
Wave 4b (1992-2000) what was the economic and stock market conditions of this period?
Low interest rates and high stock prices
75
Wave 4b (1992-2000) this period experienced a historic high level of M&A activity of...
15% of GNP
76
Wave 4b: the Internet bubble and venture capital boom ended in...
2000
77
What dates did wave 5 occur?
2003-2007
78
How was wave 5 (2003-2007) characterized?
Private equity wave
79
During wave 5 (2003-2007) private equity and some hedge funds trumped...
Strategic buyers
80
Wave 5 (2003-2007) SOX in 2002 motivated many companies to...
Go private
81
Wave 5 (2003-2007) what type of purchase returned during this period?
LBO returned
82
Wave 5 (2003-2007) what financial innovation, economic activity and stock market activity was occurring during this time?2
1 CDOs
2 real estate boom
3 high stock prices
83
```
Wave 5 (2003-2007) during this period, shareholder's...
(Ex. Yahoo)
```
Rights started to prevail (Yahoo)
84
Wave 5 (2003-3007) how did this period end?
Collapse of capital markets
85
Wave 5 (2003-2007) in addition to various banks, what 5 major companies collapsed during this period?5
```
1 Lehman
2 Bear Sterns
3 AIG
4 Fannie
5 Freddie
```
86
What was the major topic Joseph Schumpeter talked about?
Creative Destruction in M&A
87
Joseph Schumpeter (creative destruction) said rationality is...
Not an explanation for cycles
88
Joseph Schumpeter (creative destruction) focuses on entrepreneur as...
Source for growth
89
Joseph Schumpeter (creative destruction) an entrepreneur seeks to...
Create turmoil and revolutionize
90
Joseph Schumpeter (creative destruction) an entrepreneur exploits...
Inventions or untried technology
91
Joseph Schumpeter (creative destruction) an entrepreneur explains...
Disequilibrating effect of periodic prosperities
92
Joseph Schumpeter (creative destruction) the focus of entrepreneur (general) consists of...
Getting things done
93
Schumpeter: 3 facts that describe the constant revolution of economic structure
1 destroying the old, creating the new
2 essential fact of capitalism
3 entrepreneurs at center of this
94
Schumpeter: M&A opportunists should listen for turbulence at levels of...
Firms and markets an exploit it
95
Schumpeter: M&A opportunists should regard M&A as an essential vehicle for...
Corporate change
96
The Sherman Antitrust Act of 1890 was intended to protect the public from avaricious business practices designed to...
Limit or eliminate competition in the market place
97
The Sherman Antitrust Act...
Breaks up Monopoly power
98
Drivers of Cross Border M&A: exploit...
Exploit market imperfections
99
Drivers of Cross Border M&A, exploit market imperfections 5
```
1 raw materials
2 labor costs
3 consumer demand
4 deregulation
5 trade liberalization
```
100
Drivers of Cross Border M&A: reduce...
What is better?
Taxes (lower = better)
101
Drivers of Cross border M&A: diversify
Give example.
What do you want to look for?
If US is in recession, may want to go elsewhere
Look for low correlation with US market
102
Cross Border M&A: Exploit capital...
Markets
103
Drivers of Cross Border M&A: exploit capital markets
Carry trade
104
Drivers of Cross border M&A: exploit capital markets,
Define carry trade3
Currency, interest rates and inflation differences
105
Driver of Cross border M&A: Exploit Capital Markets,
Foreign countries increase US M&A when...
Their economies are slow
106
Driver of Cross border M&A: Exploit Capital Markets,
The US invests in foreign countries when...
It's growth is slow
107
Driver of Cross border M&A: Improve governance and...
Avoid regulation
108
Driver of Cross border M&A: Improve governance, avoid regulation.
Degrees of investor protection are...2
High in US and UK
Favorable regulatory environment
109
Strategic Analysis of Cross border M&A: key data 5
```
1 economic growth rate
2 niche resources/capabilities
3 inflation, interest rates, exchange rates
4 valuation of assets
5 risks
```
110
What is an example of risk in cross border M&A key data?
Sovereign debt
111
Cross Border M&A Strategic analysis:
Macroeconomic view 5
```
1 fiscal/monetary policy
2 exchange rate
3 intervention
4 trade
5 employment & welfare
```
112
Michael Porter 1990 (Cross Border M&A)
Factor conditions define
Inputs of production
113
Michael Porter 1990 (Cross Border M&A)
Factor conditions are inputs of production such as...3
1 labor
2 natural resources
3 infrastructure
114
Cross Border M&A: Microeconomic view 4
1 factor conditions
2 demand conditions
3 support industries
4 domestic rivalry and competitors
115
Cross Border M&A:
Demand conditions
Home market demand for goods and services (sophistication)
116
Cross Border M&A:
Support industries
Supplier and distribution
117
Cross Border M&A:
Domestic rivalry and competitors
Stifled or supported
118
Cross Border M&A Strategic analysis:
Institutions 5
```
1 banking
2 stock market/investment regulation
3 watchdogs
4 judiciary
5 education system
```
119
Cross Border M&A Strategic analysis:
Watchdogs 2
1 press
2 political parties
120
Cross Border M&A Strategic analysis:
Judiciary 3
1 independent
2 rule of law
3 respect for contracts
121
Cross Border M&A Strategic analysis:
Education system 2
1 literacy rates
2 generation of intellectual property
122
Cross Border M&A Strategic analysis:
Culture 5
```
1 work ethic
2 entrepreneurship
3 leadership
4 tolerance for risk
5 appetite for profit
```
123
Michael Porter 3 strategies
1 low cost leadership
2 differentiation
3 focus
124
Strategy: Mission, define2
What services or products do we provide to whom
and how?
125
Define M&A strategy2
How are we going to get there
and be who we want to be
126
Strategy: objectives define
Goals and aspirations
127
Typical strategic decisions:
How do we create...
More value for who?
128
Typical Strategic decisions:
What businesses do...
We want to be in
129
Typical Strategic decisions:
Where do we...
Want to grow?
130
What does the tool SWOT stand for?
Strengths
Weaknesses
Opportunities
Threats
131
Michael Porter's 3 strategies for competitive advantage:
Cost leadership define
Achieved by having the lowest prices in the target market segment
132
Michael Porter:
cost leadership is achieved by winning market share by appealing to...
cost conscious (price sensitive customers)
133
Michael Porter:
Differentiate products, where the target customer segment is...
Not price sensitive
134
Michael Porter:
Differentiate products where the market is either...
Competitive or saturated
135
Saturated market
Product already widely distributed throughout the market
136
Michael Porter:
Differentiation is used when customers have...
Very specific needs
137
Michael Porter:
Focus (AKA Segmented strategy or niche strategy)
Company focuses on a few target markets
138
Target markets in focus strategy are distinct groups with...
Specialized needs
139
Michael Porter's Five Forces: industry Analysis & Firm's Strategic Position
```
1 Barriers to entry
2 Customer Power
3 Supplier Power
4 Threat of Substitutes
5 Rivalry Conduct
```
140
Michael Porter:
Barriers to entry 5
```
1 regulatory
2 brand
3 patents
4 high capital requirements
5 know how
```
141
Michael Porter:
Customer Power
Customers price takers or price makers
142
Michael Porter:
Supplier Power
Suppliers are price takers or price makers
143
Michael Porter:
Threats of Substitutes (what does this do)
Limits pricing power
144
Michael Porter:
Rivalry Conduct, it is dynamic among...
Players in the industry
145
Tools, growth share matrix effectively allows you to compare...2 (subsets of 3)
1 growth/share/size
2 divisions/competitors/products
146
Inorganic growth
Growth by acquisition
147
Organic growth
Internal growth
148
Organic vs. inorganic growth is a classic example of...
Make vs. buy
149
3 paths to inorganic growth
1 benefit from relationship
2 need for ownership and control
3 manage risk
150
Motive for inorganic growth:
Maturing...
Product line
151
Motive for inorganic growth:
Regulatory or...
Antitrust limits
152
Motive for inorganic growth:
Horizontal or...
Vertical integration
153
Motive for inorganic growth:
Acquire...
Resources or capabilities
154
One other motive for inorganic growth?
Diversify
155
Horizontal integration
Consolidating peer firms
156
Vertical integration
Along the value change
157
3 motives for horizontal integration
1 increase market power
2 reduce competition
3 gain scale
158
2 types of vertical integration
1 upstream
2 downstream
159
Vertical Integration:
Upstream
1) whose acquired?
2) motive for acquiring?
1 distributors
2 retail for revenue growth
160
Vertical integration
Downstream
1) whose acquired
2) motive for acquisition
1) suppliers
| 2) reduced expense
161
Unique resources/capabilities 3
1 technology
2 know how
3 intellectual property
162
Motives for diversification:
Uncorrelated...
Cash flows
163
Motives for diversification:
Promote...
Knowledge transfer
164
Motives for diversification:
Reduce...
Costs
165
Motives for diversification:
Critical...
Mass
166
Motives for diversification:
Internal...
Capital markets
167
Critical mass
Minimum size or amount needed required to start/maintain a venture
168
4 motives for Inorganic growth
1 contractual relationships
2 strategic alliances
3 joint ventures
4 minority investment
169
Inorganic growth:
Contractual relationships examples (1st 3)3
1 licensing
2 co-marketing
3 co-development
170
Inorganic growth:
Contractual relationship examples (2nd 3)3
1 joint purchasing
2 franchising
3 long term supply
171
Inorganic growth:
Strategic Alliances 2
1 exchange or talent or resources
2 possible equity investments
172
Inorganic growth:
Strategic alliances are characterized as more than...
Contractual
173
Inorganic growth:
Joint ventures 2
1 separate entity
2 can be complex
174
Inorganic growth:
Minority investment
1 noncontrolling equity investment
2 cross shareholding
175
Restructuring:
Carve-out
Business unit to separate entity & IPO
176
Restructuring:
Spin-off
Like a carve-out but parent gives stock to shareholders
177
Restructuring:
Split-off or exchange
Shares are swapped
178
Restructuring:
Tracking stock
Separate claim on subsidiary business
179
Restructuring:
Recapitalization
Debt/equity mix change
180
Divestiture motives:
First 3
1 regain focus
2 correct mistakes
3 capture market value of assets
181
Divestiture motives:
Second 3
1 internal capital market
2 reduce leverage/taxes
3 gain financing
182
Diversification vs. focus, which pays?
Focus
183
Diversification is more likely to...
Divest
184
Productivity is higher in...
Diversified companies
185
Strategy: Some Lessons Learned:
Value creation...
Discipline is vital
186
Strategy: Some Lessons Learned:
Avoid...
Avoid Momentum logic
187
Strategy: Some Lessons Learned:
Concentrate of...
Sound investing
188
Strategy: Some Lessons Learned:
Value oriented...
Management
189
Strategy: Some Lessons Learned:
Guard against...
Stupidity
190
Economics of information
Focus on obtaining high quality private info on targets
191
Use personal networks to gain short cut to...
Targets
192
Building a network is like investing in options...
Payoff is uncertain
193
Contagion:
Diffusion of info is like...
The spread of rumors (unreliable)
194
The currency of the search is...
Information
195
Info generates insights which leads to...
Deals
196
Principals of a search:
Requires a network that generates info and usually involves...
An exchange (give and get)
197
Principals of a search:
Better to focus on process and relationships rather than...
Outcomes
198
A buyer seeks private...
Asymmetric info
199
Info that is private and clear is...
Costly
200
According to efficient market hypothesis, market info is...
Fully priced
201
Informational asymmetry leads to...
Profit arbitrage
202
Acquisition guidelines (apply well and make a lot of money)
First 3
1 fragmented industry
2 favorable growth potential
3 reasonable valuations
203
Acquisition guidelines (apply well and make a lot of money)
2nd 3
1 basic operations (no start ups)
2 recurring revenues
3 limited regulation
204
Screening variables
| 1st 3
1 industry, position (share/rank), locations
2 resources/strategic capabilities
3 size: sales or assets
205
Screening variables
| 2nd 3
1 profitability
2 risk exposure
3 asset type
206
Screening variables
Risk exposure
Reduces or adds risk
207
Screening variables
Asset type
Tangible or intangible
208
Screening variables
| 3rd 3
1 management quality
2 prospective control
3 organizational fit
209
Screening variables
Management quality, define w/example
1 personal goodwill
Ex. Dentist in practice is key to making business run
210
Screening variables
Prospective control
What's the prospect of buying all the shares
211
Screening variables
Organizational fit2
1 complementary skill sets
2 can everyone get along
212
Recurring revenues
Contract revenues are gold
213
3 strategies of Michael Porter lead to...
Competitive advantage
214
Screening criteria from kestrel ventures:
Establish...
Market position
215
Screening criteria from kestrel ventures:
Potential of...
Growth
216
Screening criteria from kestrel ventures:
Strong...
Cash flow potential
217
Screening criteria from kestrel ventures:
Potential for...
Financing
218
Screening criteria from kestrel ventures:
Platform for...
Management
219
Social Networks in M&A:
Seeks to acquire info...
Held by others
220
Social Networks in M&A:
Best info is from...1
2 what is it not from?
An exchange
Not one way
221
Social Networks in M&A:
Degree of separation from those who know. 6 degrees
Average know 6 people away (1-11)
222
Social Networks in M&A:
Studies show 3 key people in network, these are referred to as...
Rich nodes
223
Social networks in M&A:
You don't have to know everything, you just have to...
Be connected
224
There is strength in...
Weak ties
225
In networking, diversity and breadth matter more than...
Depth
226
Under Metcalf's Law, the value of network is proportional to the number of...
Working nodes in it
227
Best info just comes from...
Showing up
228
Early info, researcher should position to be...
Upstream
229
3 types of navigators
1 connectors
2 river guides
3 gate keepers
230
Networking:
Use connectors to get...
Upstream
231
River guides
Industry experts
232
Gatekeepers
Broker/investment banker
233
11 steps of an acquisition in order
```
1 strategy/search
2 discovery/initial contact
3 confidentiality agreement
4 term sheet/letter of interest
5 due diligence
6 board vote
7 public disclosure
8 antitrust filings
9 shareholder vote
10 closing
11 postmerger integration
```
234
Discovery is not...
Not due diligence
235
Due Diligence Purpose:
Direct research conducted by...
Buyer about target
236
Due Diligence Purpose:
Provides support for...
Valuation
237
Due Diligence Purpose:
Arms...
Negotiators
238
Due Diligence Purpose:
Test accuracy of...
Reps and warranties
239
Due Diligence Purpose:
Form basis of...
Postmerger integration
240
Due Diligence Purpose:
Identification of...
Risks
241
Due Diligence Purpose:
Employs...
Audit techniques
242
Due diligence should focus on...
Developing knowledge
243
Due diligence checklist 6
```
1 Legal
2 IT
3 Operations
4 Accounting & Tax
5 HR
6 Other
```
244
Never sign a non-compete agreement unless...
You are paid for a living
245
For a non-compete agreement, bring it to an...
Employment attorney to negotiate
246
Never sign a non compete agreement if it is...
Too restrictive
247
Noncompete what do they do?
Prevent you from working for a competitor
248
Merger of equals (MOE)
Definition
No control premium in transaction
249
A merger of equals is bad for shareholders because...
No premium is paid
250
A merger of equals is like a...
50/50 joint venture
251
Merger of Equals (MOE) is an example of the impact of...
Social terms on deal price or terms
252
Social (no economic) issues 4
1 mgt and governance
2 BoD
3 CEO/senior mgt.
4 key staff
253
Social issues:
1st 3
1 mgt. team
2 retention pmts
3 severance pmts
254
Social issues:
2nd 3
1 leadership succession
2 organizational design
3 board composition
255
Social issues
3rd 3
1 Structure of transition
2 corporate name
3 headquarters location
256
Valuation method:
Intrinsic value
Use triangulation to estimate
257
Intrinsic value can't be...
Can't be observed in market
258
Intrinsic value is a measurement with...
Error
259
Intrinsic value uses...
Ranges of value
260
Valuation method:
Book value is based upon...
GAAP
261
Valuation method:
Book value is historical and...
Backward looking
262
Valuation method:
Book value can understate...
Intangibles
263
Valuation method:
Book value has very limited...
Application
264
Liquidation value:
Characterized by fetch...
At auction
265
Liquidation value:
Liquidation value is most...
Conservative
266
Liquidation value:
Is not a...
Not a going concern
267
Liquidation value:
Very specific to...
Appraiser
268
Liquidation value:
How fine to...
Break it up
269
Liquidation value:
Requires onsite...
Inspection
270
Liquidation value:
Bust up or...
Breakup value
271
Liquidation value:
Very limited...
Applications
272
Valuation method, Replacement cost:
Cost to replace...
Assets piecemeal
273
Valuation method, Replacement cost:
Current...
Conditions
274
Valuation method, Replacement cost:
Very...
Subjective
275
Valuation method, Replacement cost:
Some impossible to...
Replace
276
Valuation method, Replacement cost:
Limited in...
Application
277
Valuation: market value of firm is...
Market value of debt + market value of equity
278
Valuation method, Market value:
Equity = share price X...
Number of shares
279
Valuation method, Market value:
Debt equals the...
Present value of cash flows
280
Valuation method, Market value:
The value of debt is sometimes close to...
Book
281
Valuation method, Market value:
Reflects all that is known but does not reflect...
Asymmetric info
282
Valuation method, Market value:
Market value of firm is useful in...2
Reference and negotiations
283
Valuation method, Market value:
Marketable minority value needs adjustment for...
Control
284
Valuation method, comparable peer market value:
Uses classic...
Multiples
285
Valuation method, comparable peer market value:
Uses what kind of data?
Accounting data
286
Valuation method, comparable peer market value:
EBITDA as a proxy for cash flow is...
Weak
287
Valuation method, comparable peer market value:
Often data is...
Historical
288
Value of an enterprise =
Value of equity + value of debt
289
Valuation method, comparable peer market value:
There can sometimes be a lack of...
Lack of comparable firms
290
Valuation Method: Actual transaction value of Peer firms:
Based upon...
Actual prices
291
Valuation Method: Actual transaction value of Peer firms:
Hard to know if they are...
Comparable or current
292
Valuation Method: Actual transaction value of Peer firms:
May reflect a...
Control premium
293
Value Method: Discounted Cash Flow:
Firm's enterprise value is the sum of...
Before any payments to...
PV of FCF
before any payments to debt or equity
294
Value Method: Discounted Cash Flow:
Arise from all the many...
CF projects under management by the firm
295
Value Method: Discounted Cash Flow:
Projects are assets which are...
Tangible or intangible
296
Value Method: Discounted Cash Flow:
Enterprise FCF =...
Net profit + Noncash charges - investments
297
Key concepts of DCF:
Return is...
It is not...
Net cash flow
Not accounting profit
298
Key concepts of DCF:
Cash flow has...
Time value
299
Key concepts of DCF:
Cash flows over different time period are not...
Directly comparable
300
Key concepts of DCF:
Future cash flows (both benefits and costs or FCF) are reduced to...
Present value comparable
301
DCF Assumptions:
Cash flows over time are...2
1 not comparable
2 must be adjusted
302
Key concepts of DCF:
People prefer...
Present consumption over future consumption
303
Key concepts of DCF:
People must be offered more in the future to...
Give up present consumption
304
Key concepts of DCF:
The offer is called the...
Real rate of return
305
Key concepts of DCF:
The greater the real rate of return and the further out into the future. The greater the difference between the value of...
CF today and CF in the future
306
Key concepts of DCF:
Cash flows therefore must be weighted and we call that process...
Discounting
307
What factors for choosing comparable companies out of a company list?
1 comparative ratios
2 similar business models
308
How do you calculate NOPAT?
NOPAT = EBIT - tax
309
Free Cash Flow Equation
FCF = NOPAT + depreciation + amortization - change in NWC - CAPEX
310
Cost of capital is like the cost of any other raw material used in production, cash is the most...
Fundamental of raw materials
311
The value of synergies is...
The value created when companies are merged together
312
Marketable minority value is...
The value of 1 share
313
Intangibles are often understated on the balance sheet because...
Associated with CF
314
Replacement cost is...
Not often used in valuation
315
Control value is equivalent to...
Marketable minority value
316
Use market data instead of historic data when calculating...
WACC
317
Control premium is a premium when...
Multiple shares are traded
318
Midpoint is the...
Average of peer ratios
319
Triangulate is developing views of...
Multiple ranges
320
What is the calculation for EBITDA?
EBIT + Depreciation + Amortization
321
What is the difference between EBITDA and FCF?3
FCF also subtracts out...3
1 taxes
2 change in NWC
3 CAPEX
322
Expected market return - risk free rate =...
Market risk premium
323
Enterprise value = value of debt + ..
Value of equity
324
Value of equity =
Value of enterprise - value of debt
325
Value of enterprise = value standalone + ...
Valuesynergies
326
Inplace Synergies:
Payoffs are reasonably...2
Predictable
Measurable in cash
327
Real option synergies:
The right, but not the...
Obligation to pursue new strategies
328
5 kinds in-place synergies
```
1 revenue enhancement
2 cost reduction
3 asset reduction
4 tax reduction
5 financial synergies
```
329
Real option synergies 5
```
1 growth options
2 exit options
3 deferral options
4 alter operating scale
5 switch
```
330
DCF synergies should use...
Bottom up approach
331
Cost synergies analyze
NPV of cost savings
332
Synergies:
Revenue enhancement 2
1 offer new products
2 sell to other companies customer base
333
Synergies
Asset reduction, define, example
Sell assets that come to disuse
Ex. Company doesn't need to headquarters
334
Synergy:
Switch
Switch strategies
335
DLOM
Discount for lack of marketability
336
Another way to phrase discount for lack of marketability (DLOM)
Discount for illiquidity
337
Long term debt includes...3
1 bonds
2 mortgages
3 other long term loans
338
Other long term loans that are considered debt...
1 student loans
2 car loans
3 credit card debt
