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Company A is considering acquiring Company B. Company A’s P/E is 50x earnings, whereas company B’s P/E ratio is 20x earnings. After Company A acquires Company B, will Company A’s earnings per share rise, fall, or stay the same?
As always, please feel free to email in your answers to be posted (jufiberclub@gmail.com), reply in the comment box below, or email and Tweet this question to someone who may want to take a stab at it!
As always, please feel free to email in your answers to be posted (jufiberclub@gmail.com), reply in the comment box below, or email and Tweet this question to someone who may want to take a stab at it!
What are the 3 major valuation methodologies used in investment banking?
As always, please feel free to email in your answers to be posted (jufiberclub@gmail.com), reply in the comment box below, or email andTweetthis question to someone who may want to take a stab at it!
If there are two identical companies, one financed 100% with equity and the other with 50% equity and 50% debt, which would be worth more?
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What are the four main drivers of an LBO model?
What are some of the more typical sources and uses of cash in an LBO transaction?
As always, please feel free to email in your answers to be posted (jufiberclub@gmail.com), reply in the comment box below, or email and Tweet this question to someone who may want to take a stab at it!
Question #05
How do you calculate unlevered free cash flow for a DCF analysis?
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A company has had positive EBITDA for the past 10 years, but it recently went bankrupt. What are some different ways this could this happen?
Feel free to reTweet any of the questions out or forward it on to anyone who may be interested in answering them. And of course, feel free to send in your own answers below in the comment section – we’d love to hear from you!
Thanks to those who sent answers in last week!
Feel free to reTweet the questions out or forward it on to anyone who may find them of interest. And of course, feel free to send in your own answers below in the comment section – we’d love to hear from you!
Question:
If Apple buys $100 worth of new iPod factories with debt, how are all 3 statements (balance sheet, income statement, and cash flow statement) affected at the start of “Year 1”?
Hint: One statement has no changes.
ANSWER: At the start of the first year there’s no changes to the Income Statement.
On the Cash Flow Statement, the additional investment in factories would show up under Cash Flow from Investing as a net reduction in Cash Flow and thus, Cash Flow is now down by $100. The additional $100 worth of debt raised would show up as an addition to Cash Flow, canceling out the investment activity and thus, the actual cash number stays the same.
On the Balance Sheet, they net out and it stays balance since PP&E goes up by $100 and debt is up by $100.
Thanks to all who sent in responses to our last question.
Here are two questions for this week. Feel free to reTweet the questions out or forward it on to anyone who may be of interest. And of course, feel free to send in your own answers below in the comment section – we’d love to hear from you!
1 – If I were stranded on a desert island, only had 1 financial statement and I wanted to review the overall of a company – which statement would I use and why?
2 – If depreciation is a non-cash expense, why does it affect the cash balance?
ANSWERS
1 – You would want the cash flow statement as it offers the truest picture of how much cash a company is actually generating, independent of all non-cash expenses. This is core in analyzing the overall financial health of any business – it’s cash flow.
2 – While depreciation is a non-cash expense, it’s tax-deductible. Since taxes are a cash expense, depreciation therefore affects cash by reducing the amount of taxes to be paid.
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