Question 1

Using EBITA instead of NOPLAT is a best practice for testing the sum-of-the-parts valuation based on multiples of peers.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following are issues an analyst typically encounters when creating financial statements for business units?
I.Allocating corporate overhead costs.
II.Dealing with intercompany transactions.
III.Understanding financial subsidiaries.
IV.Processing overwhelming amounts of public information.

Accepted Answer

A) I and II only. 
B) II and III only. 
C) I,II,and III only. 
D) I,II,III,and IV. 
A) I and II only. 
B) II and III only. 
C) I,II,and III only. 
D) I,II,III,and IV. C

Question 3

Eliminating outliers is a best practice for testing the sum-of-the-parts valuation based on multiples of peers.

Accepted Answer

A) True 
 B)False  True

Question 4

Financing subsidiaries should be valued separately from other business units.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following are steps in valuing a multibusiness company by parts?
I.Building financial statements by business unit,based on incomplete information if necessary.
II.Allocating CEO salaries to business units.
III.Estimating the weighted average cost of capital (WACC )by business unit.
IV.Testing the value based on multiples of peers.

Accepted Answer

A) I and II only. 
B) I and III only. 
C) I,III,and IV only. 
D) I,II,III,and IV. 
A) I and II only. 
B) I and III only. 
C) I,III,and IV only. 
D) I,II,III,and IV.

Question 6

Which of the following correctly describes how to determine the beta for a business unit within a multiple-business corporation?

Accepted Answer

A) Use the average of the equity betas for the industry. 
B) Use the beta of the multi-unit enterprise. 
C) Relever the unlevered sector median beta using the capital structure of the unit. 
D) Relever the unlevered sector median beta using the capital structure of the entire multiple-business corporation. 
A) Use the average of the equity betas for the industry. 
B) Use the beta of the multi-unit enterprise. 
C) Relever the unlevered sector median beta using the capital structure of the unit. 
D) Relever the unlevered sector median beta using the capital structure of the entire multiple-business corporation.

Question 7

Which of these are best practices for testing valuation by parts based on multiples of peers?
I.Eliminating outliers.
II.Using means of all peers.
III.Using medians of close peers.
IV.Using NOPLAT instead of EBITA.

Accepted Answer

A) I and II only. 
B) I and III only. 
C) III and IV only. 
D) I,III,and IV only. 
A) I and II only. 
B) I and III only. 
C) III and IV only. 
D) I,III,and IV only.

Question 8

If an analyst estimates the NOPLAT for each of the divisions in a three-division firm at $50 million,$30 million,and $20 million,respectively,it's safe to assume that the divisions contribute 50,30,and 20 percent,respectively,to overall firm value.

Accepted Answer

A) True 
 B)False

Question 9

There is undisputed evidence that conglomerate firms trade at a discount relative to a portfolio of pure-play firms.

Accepted Answer

A) True 
 B)False

Question 10

Since many firms' valuations by a sum-of-the-parts multiples methodology are greater than the current market valuation of these firms,one can conclude that a breakup of these firms would add value for shareholders.

Accepted Answer

A) True 
 B)False

Question 11

For multibusiness units,consolidated corporate results:

Accepted Answer

A) Must eliminate internal revenues,costs,and profits. 
B) Are not possible. 
C) Are computed by summing the inputs for each accounting entry across units. 
D) Are computed by top-down algorithms that give estimated values based on the economic profit or cost of each entry. 
A) Must eliminate internal revenues,costs,and profits. 
B) Are not possible. 
C) Are computed by summing the inputs for each accounting entry across units. 
D) Are computed by top-down algorithms that give estimated values based on the economic profit or cost of each entry.

Question 12

Which of the following are issues in the creation of the financial statements for business units?
I.Allocating corporate overhead costs.
II.Dealing with intercompany transactions.
III.Estimating unit betas.
IV.Dealing with incomplete information when using public information.

Accepted Answer

A) I and II only. 
B) II and IV only. 
C) I,II,and IV only. 
D) II,III,and IV only. 
A) I and II only. 
B) II and IV only. 
C) I,II,and IV only. 
D) II,III,and IV only.

Question 13

As CFO,you are trying to allocate investment funds across your three-division firm.You observe the revenues last year for Divisions A,B,and C as $1.0 billion,$4.0 billion,and $5.0 billion,respectively.You should therefore allocate investment budgets of 10,40,and 50 percent,respectively,of the overall firm's investment budget to Divisions A,B,and C.

Accepted Answer

A) True 
 B)False

Question 14

CEO salaries should be allocated to business units based on the number of employees in the units.

Accepted Answer

A) True 
 B)False

Question 15

Human resources costs should be allocated to business units based on the number of employees in the units.

Accepted Answer

A) True 
 B)False

Exam 17: Valuation by Parts

Using EBITA instead of NOPLAT is a best practice for testing the sum-of-the-parts valuation based on multiples of peers.

Eliminating outliers is a best practice for testing the sum-of-the-parts valuation based on multiples of peers.

Financing subsidiaries should be valued separately from other business units.

Which of the following correctly describes how to determine the beta for a business unit within a multiple-business corporation?

Which of these are best practices for testing valuation by parts based on multiples of peers? I.Eliminating outliers. II.Using means of all peers. III.Using medians of close peers. IV.Using NOPLAT instead of EBITA.

If an analyst estimates the NOPLAT for each of the divisions in a three-division firm at $50 million,$30 million,and $20 million,respectively,it's safe to assume that the divisions contribute 50,30,and 20 percent,respectively,to overall firm value.

There is undisputed evidence that conglomerate firms trade at a discount relative to a portfolio of pure-play firms.

Since many firms' valuations by a sum-of-the-parts multiples methodology are greater than the current market valuation of these firms,one can conclude that a breakup of these firms would add value for shareholders.

For multibusiness units,consolidated corporate results:

Which of the following are issues in the creation of the financial statements for business units? I.Allocating corporate overhead costs. II.Dealing with intercompany transactions. III.Estimating unit betas. IV.Dealing with incomplete information when using public information.

CEO salaries should be allocated to business units based on the number of employees in the units.

Human resources costs should be allocated to business units based on the number of employees in the units.

Why Value Value

Fundamental Principles of Value Creation

Conservation of Value and the Role of Risk

The Alchemy of Stock Market Performance

The Stock Market Is Smarter Than You Think

Return on Invested Capital

Growth

Frameworks for Valuation

Reorganizing the Financial Statements

Analyzing Performance

Forecasting Performance

Estimating Continuing Value

Estimating the Cost of Capital

Moving From Enterprise Value to Value Per Share

Analyzing the Results

Using Multiples

Taxes

Non-operating Items, Provisions, and Reserves

Leases and Retirement Obligations

Alternative Ways to Measure Return on Capital

Inflation

Cross-Border Valuation

Case Study: Heineken

Corporate Portfolio Strategy

Performance Management

Mergers and Acquisitions

Divestitures

Capital Structure, Dividends, and Share Repurchases

Investor Communications

Emerging Markets

Valuing High-Growth Companies

Cyclical Companies

Banks

Flexibility

Filters