Show work for all questions and explain 1)You are using your comparable company

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Show work for all questions and explain

1)You are using your comparable company set to value Jimmy Jones & Co. The average EBITDA multiple of the comps is 7.0x Jimmy Jones' EBITDA is 200M, and their net debt is 50M. What is Jimmy Jones' impled equity value?

a) 200

b) 1,350

c) 1,400

d) 1,450

2) In a DCF, if EBIT is 100, the long term ETR is 30%, D&A is 25, capex is 15 and the increase in OWC is 7, what is the free cash flow that year?

a) 23

b) 73

c) 87

d) 97

3) In a DCF, if the target capital structure of Tony's Treats is 40.0% equity and 60.0% debt, the cost of equity is 10.0%, the cost of debt is 7.0%, and the MTR is 30.0%, what is the WACC?

a) 3.9%

b) 4.9%

c) 5.9%

d) 6.9%

4) In a LBO, if the entry equity is 100, exit equity is 200 and time period is 5 years, what is the IRR?

a)12.9%

b)13.9%

c)14.9%

d)15.9%

5) Which of the following is NOT an operating cash flow?

a)Increase in accounts receivable

b)Decrease in inventory

c)Net Income

d)Capex

Explanation / Answer

Solution:

Question 2

Free cash flow = EBIT ( 1 - tax rate ) - Increase in OWC - Capital Expenditue + D&A

= $ 100(1-0.30) -7 -15 + 25

= $ 73

Therefore, the answer to the above question is $ 73

Question 3

Therefore, the answer to the above question is d) 6.9%

Question 5

The answer to the above question is

d) Capex means capital expentiure, it is not a part of operating cash flow, as it is a part of investing cash flow

Question 4

At IRR, PVCI = PVCO

or PVCO - PVCI = 0

PVCO = 100

PVCI = Cash inflow * 14.9% of PVAF of 5th year

= 200 * 0.499

=$ 100

PVCI = $ 100

PVCI = PVCO

Hence, IRR = 14.9%

Weights Cost Weighted Cost of Capital Debt 60% 7%(1 - 0.3)= 4.9% 2.94% Equity 40% 10% 4.00% WACC 6.94%

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