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Question 1 of 20
1. Question
Which cash flow is discounted at WACC in a standard enterprise DCF?
Correct
FCFF is available to both debt and equity providers, so it is discounted at WACC to estimate enterprise value.
Incorrect
FCFF is available to both debt and equity providers, so it is discounted at WACC to estimate enterprise value.
Unattempted
FCFF is available to both debt and equity providers, so it is discounted at WACC to estimate enterprise value.
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Question 2 of 20
2. Question
Which rate is appropriate for discounting free cash flow to equity?
Correct
FCFE is cash flow available to equity holders after operating investment and net borrowing; use cost of equity.
Incorrect
FCFE is cash flow available to equity holders after operating investment and net borrowing; use cost of equity.
Unattempted
FCFE is cash flow available to equity holders after operating investment and net borrowing; use cost of equity.
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Question 3 of 20
3. Question
A stable business has next-year FCFF of ₹37 crore, WACC 10% and perpetual growth 3%. What is terminal value?
Correct
Terminal value = next-year FCFF/(WACC − growth) = ₹37/(10% − 3%) = approximately ₹528.57 crore. Perpetual growth must remain below WACC.
Incorrect
Terminal value = next-year FCFF/(WACC − growth) = ₹37/(10% − 3%) = approximately ₹528.57 crore. Perpetual growth must remain below WACC.
Unattempted
Terminal value = next-year FCFF/(WACC − growth) = ₹37/(10% − 3%) = approximately ₹528.57 crore. Perpetual growth must remain below WACC.
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Question 4 of 20
4. Question
An increase in operating working capital generally has what effect on free cash flow?
Correct
An increase ties up cash in receivables or inventory net of payables, so it is deducted in the cash-flow calculation.
Incorrect
An increase ties up cash in receivables or inventory net of payables, so it is deducted in the cash-flow calculation.
Unattempted
An increase ties up cash in receivables or inventory net of payables, so it is deducted in the cash-flow calculation.
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Question 5 of 20
5. Question
Why is depreciation added back when calculating cash flow from EBIT?
Correct
Depreciation is a non-cash accounting expense; it is added back, while actual capital expenditure is deducted separately.
Incorrect
Depreciation is a non-cash accounting expense; it is added back, while actual capital expenditure is deducted separately.
Unattempted
Depreciation is a non-cash accounting expense; it is added back, while actual capital expenditure is deducted separately.
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Question 6 of 20
6. Question
Risk-free rate is 5%, beta is 1.1 and market risk premium is 5%. What is cost of equity under CAPM?
Correct
CAPM cost of equity = risk-free rate + beta × market risk premium = 5% + 1.1 × 5% = 10.5%.
Incorrect
CAPM cost of equity = risk-free rate + beta × market risk premium = 5% + 1.1 × 5% = 10.5%.
Unattempted
CAPM cost of equity = risk-free rate + beta × market risk premium = 5% + 1.1 × 5% = 10.5%.
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Question 7 of 20
7. Question
Equity weight is 60%, cost of equity 14%; debt weight is 40%, pre-tax debt cost 8%, tax rate 25%. What is WACC?
Correct
WACC = 0.60×14% + 0.40×8%×(1−25%) = 10.8%.
Incorrect
WACC = 0.60×14% + 0.40×8%×(1−25%) = 10.8%.
Unattempted
WACC = 0.60×14% + 0.40×8%×(1−25%) = 10.8%.
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Question 8 of 20
8. Question
Enterprise value is ₹500 crore, debt ₹100 crore and cash ₹20 crore. What is equity value, ignoring other claims?
Correct
Equity value = enterprise value − debt + cash = ₹500 − ₹100 + ₹20 = ₹420 crore, ignoring other claims.
Incorrect
Equity value = enterprise value − debt + cash = ₹500 − ₹100 + ₹20 = ₹420 crore, ignoring other claims.
Unattempted
Equity value = enterprise value − debt + cash = ₹500 − ₹100 + ₹20 = ₹420 crore, ignoring other claims.
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Question 9 of 20
9. Question
Maintainable earnings are ₹12 crore and a suitable P/E multiple is 10. What is implied equity value?
Correct
Apply the stated multiple: ₹12 crore × 10 = ₹120 crore. The result is indicative and depends on comparability and earnings quality.
Incorrect
Apply the stated multiple: ₹12 crore × 10 = ₹120 crore. The result is indicative and depends on comparability and earnings quality.
Unattempted
Apply the stated multiple: ₹12 crore × 10 = ₹120 crore. The result is indicative and depends on comparability and earnings quality.
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Question 10 of 20
10. Question
EBITDA is ₹12 crore and comparable firms trade at 10 times EBITDA. What is implied enterprise value?
Correct
Apply the stated multiple: ₹12 crore × 10 = ₹120 crore. The result is indicative and depends on comparability and earnings quality.
Incorrect
Apply the stated multiple: ₹12 crore × 10 = ₹120 crore. The result is indicative and depends on comparability and earnings quality.
Unattempted
Apply the stated multiple: ₹12 crore × 10 = ₹120 crore. The result is indicative and depends on comparability and earnings quality.
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Question 11 of 20
11. Question
What matters most when selecting comparable companies for valuation?
Correct
Useful comparables have similar business models, growth, margins, risk, capital intensity and accounting; industry label alone is not enough.
Incorrect
Useful comparables have similar business models, growth, margins, risk, capital intensity and accounting; industry label alone is not enough.
Unattempted
Useful comparables have similar business models, growth, margins, risk, capital intensity and accounting; industry label alone is not enough.
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Question 12 of 20
12. Question
Next year‘s dividend is ₹4, required equity return 12% and perpetual growth 3%. What is value per share under Gordon growth?
Correct
Gordon value = next dividend/(required return − growth) = ₹4/(12% − 3%) = ₹44.44 per share. Required return must exceed growth.
Incorrect
Gordon value = next dividend/(required return − growth) = ₹4/(12% − 3%) = ₹44.44 per share. Required return must exceed growth.
Unattempted
Gordon value = next dividend/(required return − growth) = ₹4/(12% − 3%) = ₹44.44 per share. Required return must exceed growth.
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Question 13 of 20
13. Question
A distressed company may stop operating. Which valuation basis may be especially relevant?
Correct
Adjusted net asset or liquidation value can be informative when the going-concern assumption is weak.
Incorrect
Adjusted net asset or liquidation value can be informative when the going-concern assumption is weak.
Unattempted
Adjusted net asset or liquidation value can be informative when the going-concern assumption is weak.
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Question 14 of 20
14. Question
Fair value generally reflects which premise?
Correct
Fair value is a market-participant exit price in an orderly transaction at the measurement date, not necessarily a forced-sale price.
Incorrect
Fair value is a market-participant exit price in an orderly transaction at the measurement date, not necessarily a forced-sale price.
Unattempted
Fair value is a market-participant exit price in an orderly transaction at the measurement date, not necessarily a forced-sale price.
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Question 15 of 20
15. Question
Why may an acquirer pay a control premium?
Correct
Control may enable strategic decisions, operational changes and synergies; the premium is justified only if benefits support the price.
Incorrect
Control may enable strategic decisions, operational changes and synergies; the premium is justified only if benefits support the price.
Unattempted
Control may enable strategic decisions, operational changes and synergies; the premium is justified only if benefits support the price.
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Question 16 of 20
16. Question
Why may private-company shares require a marketability adjustment?
Correct
Restricted or illiquid shares may take longer and cost more to sell; any discount should be evidence-based and avoid double counting risk.
Incorrect
Restricted or illiquid shares may take longer and cost more to sell; any discount should be evidence-based and avoid double counting risk.
Unattempted
Restricted or illiquid shares may take longer and cost more to sell; any discount should be evidence-based and avoid double counting risk.
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Question 17 of 20
17. Question
Two merged businesses close duplicate branches and reduce premises costs. This is primarily what type of synergy?
Correct
Savings from removing duplicate operating costs are cost synergies.
Incorrect
Savings from removing duplicate operating costs are cost synergies.
Unattempted
Savings from removing duplicate operating costs are cost synergies.
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Question 18 of 20
18. Question
An acquirer cross-sells the target‘s products to its existing customer base. This is:
Correct
Cross-selling that increases sales is a revenue synergy, subject to customer and execution assumptions.
Incorrect
Cross-selling that increases sales is a revenue synergy, subject to customer and execution assumptions.
Unattempted
Cross-selling that increases sales is a revenue synergy, subject to customer and execution assumptions.
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Question 19 of 20
19. Question
What is a key purpose of financial due diligence?
Correct
It tests earnings quality, cash flows, debt-like items, working capital, accounting policies and liabilities before price and terms are finalised.
Incorrect
It tests earnings quality, cash flows, debt-like items, working capital, accounting policies and liabilities before price and terms are finalised.
Unattempted
It tests earnings quality, cash flows, debt-like items, working capital, accounting policies and liabilities before price and terms are finalised.
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Question 20 of 20
20. Question
Which matter is primarily examined in legal due diligence?
Correct
Legal diligence reviews contracts, title, litigation, licences, compliance and change-of-control clauses.
Incorrect
Legal diligence reviews contracts, title, litigation, licences, compliance and change-of-control clauses.
Unattempted
Legal diligence reviews contracts, title, litigation, licences, compliance and change-of-control clauses.