Business Valuation

## Business Valuation

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Frage 1 |

Common multiples used in the valuation of businesses are amongst others:

A | P/B |

B | P/E |

C | EV/Sales |

D | EV/EBIT |

E | EV/EBITDA |

Frage 2 |

The use of the capital asset pricing model (CAPM) in the definition of risk adjusted discount rate is widespread. Which of the following statements do you agree to?

A | A BETA factor > 1 indicates that the security reacts overproportional to the overall market trend, thus it is less volatile and therefore less risky. |

B | In the CAPM, the expected return of a risky security is calculated as the sum of the risk-free rate and a risk premium that is derived from a capital market. |

C | The BETA factor measures a security’s volatility in comparison to the total market. |

D | A BETA factor < 1 indicates that the security reacts sub proportional to the overall market trend, thus the security is less volatile and therefore less risky. |

E | BETAs that are based on historical data are rather unproblematic for business valuation since the principle of future relatedness is predominant in all DCF methods. |

Frage 3 |

For the calculation of the cost of equity with the help of CAPM several parameters have to be determined. Which statements are correct?

A | Valuing unlisted companies, the BETA factor can be determined via the BETA factor of a peer-group. However, it has to be considered that the BETAs of a peer-group have to be adjusted with respect to the individual capital structure risk. |

B | The market risk premium results out of the difference between the return of the market index used and the return of a risk free rate. |

C | The risk-free rate can be derived from securities of public companies because they can be considered a “quasi certain”. |

D | In practice, listed companies determine the BETA factor without the help of linear regression. |

E | The BETA factor of a listed company results out of the covariance between the company and the return of the market index in comparison to the variance of the market indexes yield. |

Frage 4 |

How can WACC be calculated?

A | WACC = [rD x (1-T) x D/V] + (rE x E/V) |

B | WACC = [rD x (1-T) x D/V] + (rE x E/V) + (rP x P/V) |

C | WACC = [rD x (1-T) x E/V] + (rE x D/V) + (rP x P/V) |

D | WACC = [rD x (1-T) x E/V] + (rE x D/V) |

Frage 5 |

The following data is given: Evaluate the share on the basis of the P/E multiple of the given peer group (Median, rounded to one decimal). Which statements do you agree to?

A | The share of the Deutsche Bank is slightly overvalued by tendency because the calculated value per share is below the current price. |

B | There results a P/E multiple of 9.8 for the peer group. |

C | There results a P/E multiple of 9.0 for the peer group. |

D | The share of the Deutsche Bank is slightly undervalued by tendency because the calculated value per share is above the current price. |

Frage 6 |

The following data is given: Evaluate the share of Deutsche Bank for 01/01/2007 through discounting the future EPS. Assume that from 2009 onwards there will be an annuity of the EPS. Which statements do you agree to?

A | By discounting the expected EPS it results a value of approx. 74 EUR per share. |

B | The share of the Deutsche Bank is overvalued by tendency because the calculated value per share is below the current price. |

C | The share of the Deutsche Bank is undervalued by tendency because the calculated value per share is above the current price. |

D | By discounting the expected EPS it results a value of approx. 81 EUR per share. |

Frage 7 |

Which variable is calculated in the following figure?

A | EBIT |

B | FCFE |

C | FCFF |

D | EBITDA |

Frage 8 |

Which variable is calculated in the following figure?

A | EBIT |

B | FCFF |

C | EBITDA |

D | FCFE |

Frage 9 |

Which variable is calculated in the following figure?

A | EBITDA |

B | EBIT |

C | FCFE |

D | FCFF |

Frage 10 |

Which variable is calculated in the following figure?

A | FCFE |

B | EBITDA |

C | EBIT |

D | FCFF |

Frage 11 |

There exist different DCF models for the valuation of businesses. Which of the following statements are correct?

A | The equity value can be calculated out of the entity / enterprise value by subtracting net debt (interest bearing debt – cash). |

B | Applying the DCF method all future cash flows are discounted to the present day and added up. Influencing variables are the discount rate, the future cash flows and the maturity period. |

C | When talking about the DCF method it is distinguished between the entity and equity method. Equity methods such as the APV method calculate the equity’s value directly whereas the value of the hole entity (equity + dept) is calculated when the entity method is applied. |

D | The discount rate in the equity method equals the weighted average cost of capital (WACC). |

E | The equity method is more or less equal to discounted earnings, apart from the numerator that includes a potential dividend payment in the equity method. |

Frage 12 |

Depending on the valuation method, different cash flow concepts are used. Which statements are false?

A | If the FCFF is reduced by interest payments and redemptions the result is the FCFE. |

B | In the equity method, the FCFE is the numerator. It represents a potential dividend payment that is not actually distributed. |

C | Free Cash Flow to Equity (FCFE, Flow to Equity) is available for the satisfaction of all financiers. |

D | Free Cash Flow to Firm (FCFF, Flow to Entity) is only available to the proprietor of the business. |

Frage 13 |

In business valuations a lot of possible multiples are available. Which of the following statements do you agree to?

A | The EV/EBITDA (in contrast to P/E) multiple is particularly suitable for transboundary valuation comparisons because nearly all bias such as depreciation policy, financial policy and goodwill treatment are eliminated in EBITDA. |

B | The price-earnings ratio is not useful for the valuation of a business in a turn-around situation or at the beginning of its lifecycle. |

C | Turnover multipliers are not normally subject to such great variations in comparison to profit multipliers because turnovers are less volatile than profits. |

D | With entity multiples the enterprise value is normally put into relation with an operating income after tax. |

E | The P/B ratio is calculated by dividing the book value of a company’s equity by the market value of the equity. |

Frage 14 |

Continuing value or terminal value is a fundamental value driver in business valuation. The following data is given: In year 1 a company generates a CF of 10 Mio. EUR; from the second year onwards the company earns a CF of 15 Mio. EUR, costs of capital are 10%.

A | PV(TV Scenario 1): 124,0 Mio. EUR / PV(TV Scenario 2): 158,1 Mio. EUR |

B | PV(TV Scenario 1): 136,4 Mio. EUR / PV(TV Scenario 2): 170,5 Mio. EUR |

C | PV(TV Scenario 1): 150,0 Mio. EUR / PV(TV Scenario 2): 191,3 Mio. EUR |

D | PV(TV Scenario 1): 136,4 Mio. EUR / PV(TV Scenario 2): 173,9 Mio. EUR |

Frage 15 |

The following data is given: Calculate the costs of equity, cost of debt capital as well as the WACC of Daimler AG with the results rounded to one decimal (rounding up at 0.5).

A | CoE = 11,0% / After tax CoD = 2,9% / WACC = 5,6% |

B | CoE = 11,0% / After tax CoD = 4,3% / WACC = 6,5% |

C | CoE = 9,9% / After tax CoD = 4,3% / WACC = 6,2% |

D | CoE = 11,0% / After tax CoD = 4,7% / WACC = 7,8% |

Frage 16 |

The following data is given: Evaluate the share on the basis of the P/S multiplier of the given peer group (Median, rounded to one decimal). Which statements do you agree to?

A | There results a P/S multiple of 0.4 for the peer group. |

B | The share of the Daimler AG is fairly valued by tendency because the calculated value per share corresponds to the current market price of the share. |

C | There results a P/S multiple of 0.5 for the peer group. |

D | The share of the Daimler AG is undervalued by tendency because the calculated value per share is above the current market price of the share. |

E | The share of the Daimler AG is overvalued by tendency because the calculated value per share is below the current market price of the share. |

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