In determining the purchase price for an acquisition target, which one of the following valuation methods does not require the addition of a purchase price premium?
A. Discounted cash flow method
B. Comparable companies’ method
Comparable industries’ method
D. Recent transactions’ method
E. A & B only
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Which one of the following factors is not considered calculating a firm’s PEG ratio?
A. Projected growth rate of the value indicator (e.g., earnings)
B. Ratio of market price to value indicator (e.g., P/E)
C. Share exchange ratio
D. Historical growth rate of the value indicator
E. None of the above
The incremental cash flows of a merger can relate to which of the following:
A. Working capital
B. Profits
Capital spending
D. Income taxes
E. All of the above
When evaluating an acquisition, you should do which of the following:
A. Ignore market values of assets and focus on book value
B. Ignore the timing of when the cash flows will be received
C. Ignore acquisition fees and transaction costs
D. Apply the discount rate that is relevant to the incremental cash flows
E. Ignore potential losses of management talent
Which of the following is true about the variable growth model?
A. Present value equals the discounted sum of the annual forecasts of cash flow
B. Present value equals the discounted sum of the annual forecasts of cash flow plus the discounted value of the terminal value
C. Present value equals the discounted value of the next year’s cash flow grown at a constant rate in perpetuity
D. Present value equals the current year’s free cash flow discounted in perpetuity
E. None of the above
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