Investment Banking Workbook E-Book

Joshua Rosenbaum

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 184

Veröffentlichungsjahr: 2013

Beschreibung

Investment Banking WORKBOOK is the ideal complement to Investment Banking, Valuation, Leveraged Buyouts, and Mergers & Acquisitions, Second Edition, enabling you to truly master and refine the core skills at the center of the world of finance. This comprehensive study guide provides an invaluable opportunity to explore your understanding of the strategies and techniques covered in the main text, before putting them to work in real-world situations. The WORKBOOK--which parallels the main book chapter by chapter--contains over 400 problem-solving exercises and multiple-choice questions. Topics reviewed include: * style="text-align: justify; line-height: normal; margin: 0in 0in 0pt; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; tab-stops: list .5in;">Valuation and its various forms of analysis, including comparable companies, precedent transactions and discounted cash flow analysis * style="text-align: justify; line-height: normal; margin: 0in 0in 0pt; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; tab-stops: list .5in;">Leveraged buyouts--from the fundamentals of LBO economics and structure to detailed modeling and valuation * style="text-align: justify; line-height: normal; margin: 0in 0in 0pt; mso-layout-grid-align: none;">M&A sell-side tools and techniques, including an overview of an organized M&A sale process * style="text-align: justify; line-height: normal; margin: 0in 0in 0pt; mso-layout-grid-align: none;">M&A buy-side strategy and analysis, including a comprehensive merger consequences analysis that includes accretion/(dilution) and balance sheet effects The lessons found within will help you successfully navigate the dynamic world of investment banking and professional investing. Investment Banking WORKBOOK will enable you to take your learning to the next level in terms of understanding and applying the critical financial tools necessary to be an effective finance professional.

Leseprobe

Contents

Cover

Series

Title Page

Copyright

About the Authors

CONTACT THE AUTHORS

Acknowledgements

Introduction

TARGET AUDIENCE

CONTENT AND APPLICATIONS

Chapter 1: Comparable Companies Analysis

CHAPTER 1 ANSWERS AND RATIONALE

Chapter 2: Precedent Transactions Analysis

CHAPTER 2 ANSWERS AND RATIONALE

Chapter 3 :Discounted Cash Flow Analysis

CHAPTER 3 ANSWERS AND RATIONALE

Chapter 4: Leveraged Buyouts

CHAPTER 4 ANSWERS AND RATIONALE

Chapter 5: LBO Analysis

CHAPTER 5 ANSWERS AND RATIONALE

Chapter 6: Sell-Side M&A

CHAPTER 6 ANSWERS AND RATIONALE

Chapter 7: Buy-Side M&A

CHAPTER 7 ANSWERS AND RATIONALE

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Copyright © 2013 by Joshua Rosenbaum and Joshua Pearl. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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ISBN 978-1-118-45611-8 (Paperback); ISBN 978-1-118-65621-1 (cloth); ISBN 978-1-118-28125-3 (cloth + models); ISBN 978-1-118-47220-0 (paper); ISBN 978-1-118-41985-4 (ebk); ISBN 978-1-118-42161-1 (ebk); ISBN 978-1-118-69505-0 (ebk)

About the Authors

JOSHUA ROSENBAUM is a Managing Director at UBS Investment Bank in the Global Industrial Group. He originates, structures, and advises on M&A, corporate finance, and capital markets transactions. Previously, he worked at the International Finance Corporation, the direct investment division of the World Bank. He received his AB from Harvard and his MBA with Baker Scholar honors from Harvard Business School.

JOSHUA PEARL is an investment analyst at Brahman Capital Corp. Previously, he structured and executed leveraged loan and high yield bond financings, as well as leveraged buyouts and restructurings as a Director at UBS Investment Bank in Leveraged Finance. Prior to UBS, he worked at Moelis & Company and Deutsche Bank. He received his BS in Business from Indiana University's Kelley School of Business.

CONTACT THE AUTHORS

Please feel free to contact JOSHUA ROSENBAUM and JOSHUA PEARL with any questions, comments, or suggestions for future editions at [email protected].

Acknowledgments

We would like to highlight the contributions made by Joseph Gasparro toward the successful production of this workbook. His contributions were multi-dimensional and his unwavering enthusiasm, insights, and support were nothing short of exemplary. In general, Joe's work ethic, creativity, “can-do” attitude, and commitment to perfection are a true inspiration. We look forward to great things from him in the future.

We would also like to thank Ezra Faham for all his efforts and contributions in the completion of this workbook.

Introduction

This workbook is designed for use both as a companion to our book, Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions, Second Edition, as well as on a standalone basis. Investment Banking focuses on the primary valuation methodologies currently used on Wall Street—namely, comparable companies analysis, precedent transactions analysis, discounted cash flow (DCF) analysis, and leveraged buyout (LBO) analysis, as well as detailed mergers & acquisitions (M&A) analysis from both a sell-side and buy-side perspective. Our workbook seeks to help solidify knowledge of these core financial topics as true mastery must be tested, honed, and retested over time. We envision the workbook being used as a self-help tool for students, job seekers, and existing finance professionals, as well as in formal classroom and training settings.

The workbook provides a mix of multi-step problem set exercises, as well as multiple choice and essay questions. We also provide a comprehensive answer key that aims to truly teach and explain as opposed to simply identify the correct answer. Therefore, the answers themselves are an effective learning tool. The level of difficulty for these exercises and questions ranges from basic to advanced. The format of the workbook is designed to optimize mastering the critical financial tools discussed in Investment Banking and therefore corresponds to its chapters, as shown below:

Chapter 1: Comparable Companies AnalysisChapter 2: Precedent Transactions AnalysisChapter 3: Discounted Cash Flow AnalysisChapter 4: Leveraged BuyoutsChapter 5: LBO AnalysisChapter 6: Sell-Side M&AChapter 7: Buy-Side M&A

TARGET AUDIENCE

We are confident that this workbook will enable users to take their learning to the next level in terms of understanding and applying the critical financial tools necessary to be an effective finance professional. Consequently, our target audience for the workbook overlaps with Investment Banking—namely current and aspiring investment bankers, students, career changers, private equity and hedge fund professionals, sell-side research analysts, and finance professionals at corporations (including members of business development, finance, and treasury departments). We also believe our workbook is highly beneficial to those attorneys, consultants, and accountants focused on M&A, corporate finance, capital raising, and other transaction advisory services.

At the same time, our workbook is designed to serve as the ultimate teaching tool for finance professors, instructors, and trainers. The multiple choice questions are complemented by rigorous multi-step exercises designed to ensure mastery of key modeling conventions and financial calculations. It is the perfect complement to classroom or online instruction, as well as core course reading materials. In fact, Investment Banking and this workbook are designed in an integrated manner so as to provide a foundation around which a professor, instructor, or trainer can build an entire course.

CONTENT AND APPLICATIONS

The multi-step exercises are instrumental for learning the calculations and modeling skills behind the core valuation, LBO, and M&A tools. Once mastered, these exercises provide a solid foundation for financial modeling (including crafting financial projections), and performing comparable companies, precedent transactions, DCF and LBO Analysis, as well as comprehensive merger consequences analysis (including the creation of pro forma financial statements). They also provide a sound understanding of more complex calculations and nuances involving accretion/(dilution) analysis, exchange ratios, premiums paid, treasury stock method (TSM), capital asset pricing model (CAPM), weighted average cost of capital (WACC), goodwill, tangible and intangible write-ups, deferred tax liabilities, and numerous other critical topics.

The multiple choice questions are designed to be used on both an individual as well as collective basis. In other words, individual questions from each chapter can be mixed and matched to accommodate any testing, learning, or training format. At the same, taken collectively for a given financial topic, the questions and exercises provide an integrated and multidimensional approach that can be used to teach and learn the material, whether individually, in the classroom, or for a training program.

CHAPTER 1

Comparable Companies Analysis

1) Using the information provided for Gasparro Corp., complete the questions regarding fully diluted shares outstanding

a. Calculate Gasparro Corp.'s in-the-money options/warrants

    ______________________________________________________

b. Calculate proceeds from in-the-money options/warrants

    ______________________________________________________

c. Calculate net new shares from the options/warrants

    ______________________________________________________

d. Calculate fully diluted shares outstanding

    ______________________________________________________

2) Using the prior answers and information, as well as the balance sheet data below, calculate Gasparro's equity value and enterprise value

a.Calculate equity value

    ______________________________________________________

b. Calculate enterprise value

    ______________________________________________________

3) Using the information provided for Gasparro, complete the questions regarding non-recurring items

a. Calculate adjusted LTM gross profit for Gasparro, assuming the $30.0 million inventory charge is added back to COGS

    ______________________________________________________

b. Calculate adjusted LTM EBIT

    ______________________________________________________

c. Calculate adjusted LTM EBITDA

    ______________________________________________________

d. Calculate adjusted LTM net income

    ______________________________________________________

4) Using the prior answers and information, complete the questions regarding Gasparro's LTM return on investment ratios

a. Calculate return on average invested capital

    ______________________________________________________

b. Calculate return on average equity

    ______________________________________________________

c. Calculate return on average assets

    ______________________________________________________

d. Calculate implied annual dividend per share

    ______________________________________________________

5) Using the prior answers and information, complete the questions regarding Gasparro's LTM credit statistics

a. Calculate debt-to-total capitalization

    ______________________________________________________

b. Calculate total debt-to-EBITDA

    ______________________________________________________

c. Calculate net debt-to-EBITDA

    ______________________________________________________

d. Calculate EBITDA-to-interest expense

    ______________________________________________________

e. Calculate (EBITDA – capex)-to-interest expense

    ______________________________________________________

f. Calculate EBIT-to-interest expense

    ______________________________________________________

6) Using the prior answers and information, calculate Gasparro's trading multiples

a. Calculate Gasparro Corp.'s LTM enterprise value-to-sales

    ______________________________________________________

b. Calculate 2012E enterprise value-to-EBITDA

    ______________________________________________________

c. Calculate 2013E enterprise value-to-EBIT

    ______________________________________________________

d. Calculate 2014E P/E

    ______________________________________________________

e. Calculate 2014E FCF yield

    ______________________________________________________

7) Using the prior answers and information, calculate Gasparro's growth rates

a. Calculate Gasparro's historical one-year sales growth

    ______________________________________________________

b. Calculate historical two-year EBITDA compounded annual growth rate

    ______________________________________________________

c. Calculate estimated one-year FCF growth

    ______________________________________________________

d. Calculate estimated two-year EPS CAGR

    ______________________________________________________

8) Using the information provided for ValueCo's peers, complete the questions regarding LTM profitability margins

a. Calculate BuyerCo's gross profit margin

    ______________________________________________________

b. Calculate Sherman Co.'s EBITDA margin

    ______________________________________________________

c. Calculate Pearl Corp.'s EBIT margin

    ______________________________________________________

d. Calculate Kumra Inc.'s net income margin

    ______________________________________________________

e. Calculate the mean EBITDA margin

    ______________________________________________________

f. Calculate the median EBIT margin

    ______________________________________________________

9) Using the information below, calculate the LTM leverage and coverage ratios for ValueCo's peers

a. Calculate BuyerCo's debt-to-total capitalization (using market value of equity)

    ______________________________________________________

b. Calculate Sherman Co.'s debt-to-EBITDA ratio

    ______________________________________________________

c. Calculate Pearl Corp.'s net debt-to-EBITDA ratio

    ______________________________________________________

d. Calculate Kumra Inc.'s EBITDA-to-interest expense ratio

    ______________________________________________________

e. Calculate Kumra Inc.'s (EBITDA – capex)-to-interest expense ratio

    ______________________________________________________

f. Calculate Kumra Inc.'s EBIT-to-interest expense ratio

    ______________________________________________________

g. Calculate the mean debt-to-EBITDA leverage ratio

    ______________________________________________________

h. Calculate the median EBITDA-to-interest expense ratio

    ______________________________________________________

10) Using the information below, calculate the LTM valuation multiples for ValueCo's peers

a. Calculate BuyerCo's enterprise value-to-sales multiple

    ______________________________________________________

b. Calculate Sherman Co.'s enterprise value-to-EBITDA multiple

    ______________________________________________________

c. Calculate Pearl Corp.'s enterprise value-to-EBIT multiple

    ______________________________________________________

d. Calculate Kumra Inc.'s P/E multiple

    ______________________________________________________

e. Calculate the mean enterprise value-to-EBITDA multiple

    ______________________________________________________

f. Calculate the median P/E ratio

    ______________________________________________________

11) Using the information below, calculate ValueCo's implied valuation ranges using the company's LTM EBITDA

a. Calculate ValueCo's implied enterprise value range

    ______________________________________________________

b. Calculate ValueCo's implied equity value range

    ______________________________________________________

c. Calculate ValueCo's implied share price range

    ______________________________________________________

12) Using the information below, calculate ValueCo's implied valuation ranges using the company's LTM net income

a. Calculate ValueCo's implied equity value range

    ______________________________________________________

b. Calculate ValueCo's implied share price range

    ______________________________________________________

13) Which of the following is the correct order of steps to complete comparable companies analysis?

I. Locate the Necessary Financial Information

II. Select the Universe of Comparable Companies

III. Spread Key Statistics, Ratios, and Trading Multiples

IV. Determine Valuation

V. Benchmark the Comparable Companies

A. II, I, III, V, IV

B. I, II, III, IV, V

C. II, I, III, IV, V

D. III, I, IV, V, IV

14) All of the following are business characteristics that can be used to select comparable companies EXCEPT

A. Products and Services

B. Distribution Channels

C. Return on Investment

D. Sector

15) All of the following are financial characteristics that can be used to select comparable companies EXCEPT

A. Credit Profile

B. Growth Profile

C. Profitability

D. Geography

16) Which of the following are key business characteristics to examine when screening for comparable companies?

I. Sector

II. Return on investment

III. End markets

IV. Distribution channels

V. Return on assets

A. I and III

B. II and IV

C. I, III, and IV

D. I, II, III, IV, and V

17) Which of the following are key financial characteristics to examine when screening for comparable companies?

I. Customers

II. Profitability

III. Growth profile

IV. Credit profile

V. End markets

A. II and III

B. II, III, and IV

C. I, II, and IV

D. II, III, and V

18) End markets refer to the

A. Market into which a company sells its products and services

B. Medium through which a company sells its products and services to the end user

C. End users of a product or service

D. Stores that distribute a company's product or service

19) Distribution channels refer to the

A. Market into which a company sells its products and services

B. Medium through which a company sells its products and services to the end user

C. End users of a product or service

D. Stores that distribute a company's product or service

20) Which of the following is NOT a financial statistic to measure the profitability of a company?

A. Gross margin

B. EBITDA margin

C. EBIT margin

D. Equity margin

21) Which of the following is NOT a source for locating financial information for comparable companies?

A. 10-K

B. 13-D

C. Investor Presentations

D. Equity Research

22) Which of the following is the correct calculation for fully diluted shares outstanding when used in trading comps?

A. “Out-of-the money” options and warrants + “in-the-money” convertible securities

B. Basic shares outstanding + “in-the-money” options and warrants + “in-the-money” convertible securities

C. “In-the-money” options and warrants + “in-the-money” convertible securities

D. Basic shares outstanding + “out-of-the money” options and warrants

23) Which methodology is used to determine additional shares from “in-the-money” options and warrants when determining fully diluted shares?

A. Treasury Stock Method

B. “If-Converted Method”

C. Net Share Settlement Method

D. “In-the-Money” Method

24) Calculate the company's equity and enterprise value, respectively, using the information below

A. $1,000.0 million; $1,250.0 million

B. $1,000.0 million; $1,350.0 million

C. $1,700.0 million; $1,915.0 million

D. $1,700.0 million; $1,350.0 million

25) Calculate fully diluted shares using the information below

A. 150.4 million

B. 200.5 million

C. 212.0 million

D. 220.0 million

26) Calculate fully diluted shares using the information below

A. 295.4 million

B. 300.0 million

C. 303.5 million

D. 310.0 million

27) If a company has an enterprise value of $1,000 million and equity value of $1,150 million, what is the company's net debt?

A. $250 million

B. ($250) million

C. $150 million

D. ($150) million

28) What is the most conservative (most dilutive scenario) way to treat options and warrants when calculating fully diluted shares outstanding?

A. Use all outstanding “in-the-money” options and warrants

B. Use all exercisable “in-the-money” options and warrants

C. Ignore all “in-the-money” options and warrants

D. Ignore all outstanding “in-the-money” options and warrants

29) Which type of “in-the-money” options may be excluded from the calculation of fully diluted shares outstanding in comparable companies analysis?

A. Exercisable

B. Net share settled

C. Outstanding, but not exercisable

D. If-Converted

30) Calculate fully diluted outstanding shares using the information below

A. 200.5 million

B. 253.8 million

C. 260.0 million

D. 265.5 million

31) Calculate fully diluted shares using the information below

A. 325.0 million

B. 355.3 million

C. 363.5 million

D. 367.5 million

Use the information below to answer the next two questions

32) Using the if-converted method, calculate net new shares

A. 2.5

B. 5.0

C. 10.0

D. 12.5

33) Using the net share settlement method, calculate net new shares

A. 2.5

B. 5.0

C. 10.0

D. 12.5

34) What is the formula for calculating enterprise value?

A. Equity value + total debt

B. Equity value + total debt + preferred stock + noncontrolling interest − cash

C. Equity value + total debt − preferred stock − noncontrolling interest − cash

D. Equity value + total debt + preferred stock + noncontrolling interest + cash

35) All else being constant, how does enterprise value change if a company raises equity and uses the entire amount to repay debt?

A. Stays constant

B. Increases

C. Decreases

D. Not enough information to answer the question

36) Show the necessary adjustments and pro forma amounts if a company issues $200.0 million of equity and uses the proceeds to repay debt (excluding fees and expenses).

37) Which company below has a higher gross profit margin?

A. Company A

B. Company B

C. Same margin for both companies

D. Not enough information to answer the question

38) Using the information below, calculate the CAGRs for the 2010 – 2012 and 2012 – 2014 periods

A. 15.5% and 10.6%

B. (13.4%) and (9.3%)

C. 13.4% and 9.3%

D. 13.0% and 9.0%

39) Which of the following is NOT a metric used to measure a company's growth?

A. Long-term EPS growth rate

B. Historical EPS CAGRs

C. EBITDA margins

D. y/y sales growth rates

40) Calculate the company's return on invested capital (ROIC)?

A. 19.1%

B. 20.0%

C. 24.7%

D. 30.0%

41) Calculate the company's return on equity (ROE)?

A. 10.0%

B. 10.4%

C. 27.0%

D. 29.1%

42) Calculate the company's return on assets (ROA)?

A. 19.4%

B. 22.4%

C. 24.0%

D. 25.2%

43) Calculate the company's debt-to-total capitalization

A. 17.9%

B. 19.7%

C. 20.5%

D. 23.0%

44) When calculating an interest coverage ratio, which of the following is NOT used in the numerator?

A. Net income

B. EBIT

C. EBITDA

D. (EBITDA – capex)

45) Ratings of Aaa, Aa1, and Aa2 belong to which ratings agency?

A. S&P

B. Moody's

C. Fitch

D. SEC

46) Which of the following ratings is investment grade?

A. Ba1

B. BB+

C. BB-

D. BBB-

47) What is the Moody's equivalent of B+?

A. B1

B. B2

C. Ba1

D. Baa1

48) Calculate LTM 9/30/2012 sales given the information below

A. $1,900.7 million

B. $2,000.5 million

C. $2,100.0 million

D. $2,400.0 million

49) Calculate LTM 12/31/2012 sales given the information below

A. $2,500.0 million

B. $4,250.0 million

C. $4,000.0 million

D. $4,400.0 million

50) Calendarize the 4/30/2012 sales figure into a CY 2012 statistic so it can be used alongside companies reporting on a calendar year basis

A. $1,050.5 million

B. $1,550.0 million

C. $1,600.0 million

D. $1,655.5 million

51) Calculate adjusted net income, EBITDA, and EPS, respectively, assuming $50 million of D&A, and adjusting for the $10.0 million restructuring charges as well as an inventory write-down of $5 million

A. $60.0 million, $185.0 million, $2.00

B. $69.0 million, $200.0 million, $2.30

C. $60.0 million, $200.0 million, $2.00

D. $69.0 million, $185.0 million, $2.30

52) The P/E ratio is equivalent to

A. Equity value/net income

B. Enterprise value/net income

C. Enterprise value/EBITDA

D. Share price/free cash flow

53) Which of the following is not an appropriate valuation multiple?

A. Enterprise value/EBITDA

B. Enterprise value/EBIT

C. Enterprise value/net income

D. Enterprise value/sales

54) Which of the following is not an appropriate valuation multiple?

A. Equity value/EBITDA

B. Enterprise value/EBITDAR

C. Equity value/book value

D. Enterprise value/resources

55) Which statement contains the data on noncontrolling interest?

A. Income statement

B. Balance sheet

C. Cash flow statement

D. Management discussion & analysis

56) The two most generic and widely used valuation multiples are

I. Enterprise value/EBITDA

II. EBITDA/interest expense

III. Total debt/EBITDA

IV. P/E

A. I and III

B. I and IV

C. II and III

D. II and IV

57) What is the premise behind comparable companies analysis?

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

58) Two companies are very similar in terms of business characteristics, but they are currently trading at substantially different multiples. What discrepancies in financial characteristics could explain this situation?

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

59) All else being equal, which company would be expected to trade at a higher multiple—a heavily leveraged company or one with moderate to low leverage? Why?

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

60) Why are comparable companies sometimes tiered into different groups?

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

61) Match the SEC forms with their formal name

10-KProxy statement10-QAnnual report8-KCurrent reportDEF14AQuarterly report

62) Match the valuation multiples with the appropriate sector

Enterprise value/reservesRetailEnterprise value/EBITDARFinancial InstitutionsEnterprise value/subscriberMetals & miningPrice/BookMedia

63) What are some of the benefits of using comparable companies analysis?

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

64) What are some of the considerations when using comparable companies analysis?

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

    ______________________________________________________

CHAPTER 1 ANSWERS AND RATIONALE

1) Calculation of fully diluted shares outstanding