CIBA Practice Test

Question 1 of 40

1 point(s)

How does depreciation appear on a company’s income statement (IS) and cash flow statement (CF)?

Expense on IS, added to operating activity on CF
Income on IS, taken from operating activity on CF
Expense on IS, added to financing activity on CF
Does not appear on IS, added back on CF

Question 2 of 40

1 point(s)

In addition to the top of the balance sheet, where else in the financial statements can a company’s cash balance be found?

In the shareholder's equity line of the balance sheet
On the net income line of the income statement
At the bottom of the cash flow statement
As the difference between assets and liabilities

Question 3 of 40

1 point(s)

Goodwill created in an acquisition can be amortized by the acquiror.

true
false

Question 4 of 40

1 point(s)

When selecting a universe of comparable companies, which comparison to the target company is not considered?

Operating sector
Distribution channels
Size of the company
Timing of financial year end

Question 5 of 40

1 point(s)

Which of the following is a typical source for forward-looking projections of a company’s performance?

10-K
Equity research report
Proxy statement
SEC filings

Question 6 of 40

1 point(s)

What is the correct way to calculate a company’s equity value?

Shareholders' equity – total liabilities
Share price x fully diluted shares outstanding
Earnings per share x fully diluted shares outstanding
Strike price x number of options outstanding

Question 7 of 40

1 point(s)

A company’s enterprise value remains the same when it issues debt and holds the proceeds as cash on the balance sheet.

true
false

Question 8 of 40

1 point(s)

To calculate valuation based on a comparable companies analysis, a banker would not use which of the following?

Enterprise value to EBITDA multiple
Share price to EPS multiple
Acquisition purchase price to EBIT multiple
Enterprise value to sales multiple

Question 9 of 40

1 point(s)

In a transaction comps analysis, the most recent deals tend to be the most relevant.

true
false

Question 10 of 40

1 point(s)

Under a fixed exchange ratio acquisition, what happens to as the acquiror’s stock price rises?

The deal value remains the same
The target receives fewer shares as the stock rises
The acquiror issues more shares to the target
The deal value rises with the acquiror's stock price

Question 11 of 40

1 point(s)

Which of the following is not a piece of information that is likely to be spread when conducting a trading comps analysis.

Form of consideration
LTM EBITDA
Total assets
Premium paid
Purchase price

Question 12 of 40

1 point(s)

Why can it be difficult to use data about private companies in a trading comps analysis?

Their financial data may not be readily available
They often sell for a lower price than public targets
They don't accept stock from public acquirors
They have higher earnings than public targets

Question 13 of 40

1 point(s)

If a company’s stock trades at $15 and its options have a $15 strike price, what will be the effect of options exercise on the fully diluted shares outstanding?

More shares will be outstanding
Fewer shares will be outstanding
Not enough information has been provided
No effect

Question 14 of 40

1 point(s)

Which of the following is not a key step in the process for conducting a discounted cash flow (DCF) analysis?

Calculate the WACC
Compute a terminal value
Create a balance sheet adjustment column
Forecast free cash flow

Question 15 of 40

1 point(s)

What is the DCF free cash flow for the year for the following company? EBIT of $20 million, taxes of $3 million, depreciation & amortization of $2 million, capex of $5 million and a $1 million increase in net working capital?

$31 million
$13 million
$25 million
$9 million

Question 16 of 40

1 point(s)

Changes in which balance sheet accounts must be examined to calculate a DCF’s change in net working capital?

Cash, debt, and shareholder's equity
Operating, investing and financing activities
Receivables, payables, prepaids & inventory
Total assets and total liabilities

Question 17 of 40

1 point(s)

If a company’s “days inventory held” is 60, approximatelty what are the “inventory turns”?

12 times
6 times
4 times
2 times

Question 18 of 40

1 point(s)

While comparable companies and trading comps analyses provide a “market value”, DCF provides an “intrinsic value.”

true
false

Question 19 of 40

1 point(s)

If a company’s optimal capital structure is debt free, it’s WACC is equal to:

Cost of equity
Risk free rate
Unlevered beta
Market risk premium

Question 20 of 40

1 point(s)

What is the terminal value for a DCF analysis with $35 million of free cash flow in the final year, a 3% perpetual growth rate and a 12% WACC?

$233 million
$300 million
$388 million
$400 million

Question 21 of 40

1 point(s)

What is the present value of a cash inflow of $200 million in 4 years assuming an 8% discount rate?

$272 million
$192 million
$168 million
$147 million

Question 22 of 40

1 point(s)

Investment bankers often prepare LBO models to assess the price sponsors can potentially pay for an acquisition.

true
false

Question 23 of 40

1 point(s)

The name given to a financial model’s feature that allows users to easy switch between cases or scenarios is:

Data table
Sensitivity analysis
Toggle
Adjustment column

Question 24 of 40

1 point(s)

Which of the following is not a typical section of a financial model’s cash flow statement?

Investing activities
Operating activities
Financing activities
Marketing activities

Question 25 of 40

1 point(s)

A financial model’s “cash flow sweep” performs what function?

It links the cash flow statement to the balance sheet
It ensures that mandatory loan payments are made
It automatically balances the balance sheet
It uses excess cash to make pre-payments on debt

Question 26 of 40

1 point(s)

When analyzing an LBO model’s output, which data point is least important for a banker to examine?

Adequate IRR
Reasonable comparable companies
Achievable debt level
Exit multiple based on market data

Question 27 of 40

1 point(s)

All else equal, a lower purchase price leads to a higher IRR.

true
false

Question 28 of 40

1 point(s)

The best way to force a financial model with circular references to compute a value for interest expense is to:

Remove all debt from the model
Use an Excel "Pivot Table"
Use Excel's "Iteration" option
Hard code the interest data

Question 29 of 40

1 point(s)

The quickest way to see if a change to a model’s inputs has caused an error is to:

See if the IRR is still adequate
Confirm that cash balances are rising
Make sure that the balance sheet is balanced
Check that shareholders' equity is constant

Question 30 of 40

1 point(s)

In an LBO transaction, an investment bank may serve as both buy-side advisor and as a debt underwriter.

true
false

Question 31 of 40

1 point(s)

Which of the following is not a key characteristic of a strong LBO candidate?

Experienced management team
High capital expenditure requirements
Stable cash flows
Defensible market position

Question 32 of 40

1 point(s)

What is the IRR for the following cash flows: $150 million invested at the beginning and $500 million realized at the end of year 6?

20%
22%
24%
28%

Question 33 of 40

1 point(s)

Leverage is used to enhance returns in an LBO by:

Providing strong incentives for the management team
Allowing lenders to participate in a deal's upside
Financing a significant portion of the deal with debt

Question 34 of 40

1 point(s)

Which of the following is not a typical manner in which a sponsor’s LBO investment is realized?

Stock split
Initial public offering
Dividend recapitaliztion
Sale of the business

Question 35 of 40

1 point(s)

In an M&A deal, data room visits take place during the first round of the auction.

true
false

Question 36 of 40

1 point(s)

What are the minimum synergies required to avoid dilution: pre-deal EPS of $0.75, pre-deal share count of 50 million, post-deal share count of 60 million, $0 interest expenses, 40% taxes, target EBIT of $9 million.

No synergies are needed as the deal is accretive
$3.5 million of synergies
$5.0 million of synergies
$7.5 million of synergies

Question 37 of 40

1 point(s)

One key advantage of a targeted auction as compared to a broad auction is:

Ensures that all likely bidders are contacted
Maximizes the sense of competition between bidders
Excludes likely buyers
Has a higher chance of preserving confidentiality

Question 38 of 40

1 point(s)

Which of the following shows the proper ranking of various financing sources in a company’s capital structure (in order of declining seniority)?

Equity, bank debt, mezzanine debt, bonds
Bonds, equity, mezzanine debt, bank debt
Bank debt, bonds, mezzanine debt, equity
Bonds, bank debt, equity, mezzanine debt

Question 39 of 40

1 point(s)

Which of the following is not a typical characteristic of high yield bonds?

They are non-amortizing and have a bullet payment
They usually have a floating interest rate
They have a higher interest rate than bank debt
They are often unsecured

Question 40 of 40

1 point(s)

What is the name given to a series of meetings explaining the merits of an investment with potential investors in a bond or stock offering?

Roadshow
Buy-side deal
Targeted auction
Bank meeting

CIBA Practice Test

CIBA Practice Test

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