Others

Question 1

Fair market value

Answer 1

value from POV of a generic buyer (consensus value)

Question 2

Acquisition/Investment value

Answer 2

value from POV of a specific buyer (all synergies)

Question 3

How can be financed an acquisition?

Answer 3

cash, debt , stock, earn-out(seller financing), hybrid

Question 4

Factors influencing the choice on how to finance an acquisition?

Answer 4

market conditions, liquidity and creditworthiness, borrowing capacity, size of the deal, operational risk

Question 5

Trade-off theory

Answer 5

prefer debt because tax deductible and lower WACC but until a certain level of leverage because then higher default risk and WACC.

Question 6

Pecking-order theory

Answer 6

initially internal funds and then finance expenditures borrowing (new equity only as last resort because high cost)

Question 7

Convertible bonds features

Answer 7

conversion period, conversion ratio, conversion premium, call provision (Hard non call, soft call periods)

Question 8

FORMULA: NPV of an acquisition

Answer 8

NPV_Acq=W_Acq-P it depends on bargaining power and competition level

W_(Acq(B))=W_(A+B)-W_A

Question 9

Financial Valuation

Answer 9

• Income creation: Contr. Margin: Sales – Variable Costs
• Investment: WC (permanent no EoY); CAPEX (Assets net of cum depr)
• Financing: Dynamic or static approach (Net Debt/EBITDA not >2.5/3)
• Profitability: ROCE= Operational Profit*(1-Tax)/Capital employed