CFA L2 Apostila 01 Exame 2018 - COMPLETA IMPRESSÃO

LOS 33.k Describe Free Cash Flow ValuationSchweser B3 pg 216, CFAI V4 pg 504 Accounting Issues Point: While RI is straightforward, in practice it 144 requires many adjustments: 1. Violations of clean surplus relationship 2. Off-balance-sheet items 3. Intangible assets 4. Nonrecurring items on income statement 5. Aggressive accounting practices 6. International accounting differences© Kaplan, Inc.LOS 33.k Describe Free Cash Flow ValuationSchweser B3 pg 216, CFAI V4 pg 504Clean Surplus Relationship Violations Implication: Book value is correct, but net income and ROE forecast are incorrect Issue OCI items that do not net to zero over time (reverse) Solution: Calculate ROE using comprehensive income (NI + ∆ OCI items) Note: Comprehensive income = income under clean surplus accounting© Kaplan, Inc. 146 ©2018 FK Partne

SS 11- Equity InvestmentsLLOOSS333.3k .DkesDcreibsecribe Free Cash Flow ValuationSchweser B3 pg 216, CFAI V4 pg 504Clean Surplus Relationship ViolationsExamples of clean-surplus violations:  FX translation gain/losses (CTA)  Pension adjustments (remeasurements)  Unrealized gain/(loss) on available-for-sale securities  Deferred gain/(loss) on some hedges   revaluation surplus of PPE (IFRS)   in FV of liabilities due to  in credit risk (IFRS) Nothing new: Some from SS 5 145© Kaplan, Inc.LOS 33.k Describe Free Cash Flow ValuationSchweser B3 pg 216, CFAI V4 pg 504 Off-Balance-Sheet Items Examples of items needing adjustment:  Operating leases  Reserves and allowances  LIFO to FIFO inventory  Deferred tax assets and liabilities Implication: Book value misstated© Kaplan, Inc. 147ers - Exame CFA 37

LOS 33.k Describe Free Cash Flow ValuationSchweser B3 pg 216, CFAI V4 pg 504 Nonrecurring Items Examples of items requiring exclusion:  Unusual items  Extraordinary items (US GAAP)  Discontinued operations  Accounting changes  Restructuring charges Implication: Exclude nonrecurring items, RI should be based on recurring items only© Kaplan, Inc. 148 Fixed Income Investments Equity Equity Investments Valuation Models 34. Private Company Valuation ©2018 FK Partne

SS 11- Equity InvestmentsLOS 33.k Describe Free Cash Flow ValuationSchweser B3 pg 216, CFAI V4 pg 504 Aggressive Accounting PracticesExamples:  Accelerating revenue to current period  Deferring expenses to later period FRA:  Using reserves to smooth income Evaluating  Unrealistic accounting estimates the Quality of Financial Reports© Kaplan, Inc. 149LOS 34.d Explain Private Company ValuationSchweser B3 pg 236, CFAI V4 pg 550 Approaches to Valuation1. Income: PV of future income2. Market: Price multiples of comparables:  Guideline public company method (GPCM)  Guideline transactions method (GTM)  Prior transaction method (PTM)3. Asset-based: assets – liabilitiesLifecycle stage should be considered.© Kaplan, Inc. 151ers - Exame CFA 38

LOS 34.e Explain Private Company ValuationSchweser B3 pg 237, CFAI V4 pg 551Normalized Earnings Adjustments1. Nonrecurring and unusual items2. Discretionary expenses3. Nonmarket compensation levels4. Personal expenses5. Real estate expenses6. Non-market lease rates7. Strategic vs. nonstrategic buyers© Kaplan, Inc. 152LOS 34.f Calculate Private Company ValuationSchweser B3 pg 242, CFAI V4 pg 563 Income Approach Methods Free cash flow (see earlier) Capitalized cash flow Excess earnings direct capitalization= cash flow1 discount rate – growth© Kaplan, Inc. 154 ©2018 FK Partne

SS 11- Equity InvestmentsLOS 34.e Explain Private Company ValuationSchweser B3 pg 237, CFAI V4 pg 551 Issues in Cash Flow Estimation Controlling vs. noncontrolling interests Scenario analysis Lifecycle stage Management biases Capital structure changes© Kaplan, Inc. 153LOS 34.f Calculate Private Company ValuationSchweser B3 pg 242, CFAI V4 pg 563 Excess Earnings Method Example Key Financial Data: Fer Inc. $ Working capital 500,000 Fixed assets 2,000,000 Normalized earnings (year just ended) 235,000 Required return for working capital 5% Required return for fixed assets 10% Growth rate of residual income 4% Discount rate for intangible assets 20%© Kaplan, Inc. What is the value of the firm? 155ers - Exame CFA 39

LOS 34.f Calculate Private Company ValuationSchweser B3 pg 242, CFAI V4 pg 563Excess Earnings Method SolutionFer Inc. firm value:1. Return on working capital = 5% × $500,000 = $25,0002. Return on fixed assets = 10% × $2,000,000 = $200,0003. Residual income = $235,000 – $25,000 – $200,000 = $10,000© Kaplan, Inc. 156LOS 34.i Calculate Private Company ValuationSchweser B3 pg 248, CFAI V4 pg 567 GPCM: ExampleUse the following data to compute the appropriatepricing multiple:An acquirer is looking to purchase the equity ofSandro Ltd believing there are good synergies withtheir existing business.Sandro Ltd Data:Estimated market value of debt* £2,500,000Normalized EBITDA £1,400,000Discount for risk and growth 15% * Estimated using matrix pricing© Kaplan, Inc. 158 ©2018 FK Partne

SS 11- Equity InvestmentsLOS 34.f Calculate Private Company ValuationSchweser B3 pg 242, CFAI V4 pg 563 Excess Earnings Method Solution Note: direct4. Value of intangible assets capitalization model = ($10,000 × 1.04) / (0.20 – 0.04) = $65,005. Value of firm Fixed assets Working capital = $500,000 + $2,000,000 + $65,000 = $2,565,000 Intangible assets 157© Kaplan, Inc.LOS 34.i Calculate Private Company ValuationSchweser B3 pg 248, CFAI V4 pg 567 GPCM: Example (cont.)Industry information:Recent M&A activity have been financial transactionsThe industry has been relatively quiet from an M&AperspectiveIndustry control premiums have averaged 20%Industry analysts believe strategic acquisitions wouldcommand an additional premium (in excess of financialtransactions) of 5%MVIC / EBITDA x8© Kaplan, Inc. 159ers - Exame CFA 40

LOS 34.i Calculate Private Company ValuationSchweser B3 pg 248, CFAI V4 pg 567Industry GPCM: Solutionmultiple Discount for risk and growth 8  (1 – 0.15) = 6.8x Sandro Ltd valuation: £ Normalized EBITDA 1,400,000 Adjusted MVIC / EBITDA MVIC 86.58 Less MV debt £911,5,9200,0,000 Equity value (non-control) ((£22,,550000,,000000)) + Control premium 25% (1.25) £79,,042000,,000000 £8,775,000© Kaplan, Inc. 160LOS 34.k Explain/Evaluate Private Company ValuationSchweser B3 pg 254, CFAI V4 pg 576 Using Control Premiums and DiscountsComparable Data Subject Valuation Adjustment to Comparable DataControlling Interest Controlling Interest NoneControlling Interest Noncontrolling DLOC InterestNoncontrolling Controlling Interest Control Premium Interest None NoncontrollingNoncontrolling Interest Interest© Kaplan, Inc. 162 ©2018 FK Partne

SS 11- Equity InvestmentsLOS 34.j Describe Private Company ValuationSchweser B3 pg 254, CFAI V4 pg 574 Asset-Based Approach Not used for going concerns Usually the lowest valuation Difficulties in valuation: Can be used for:  Individual assets  Specialized assets  Troubled firms  Intangibles  Finance firms  Investment companies© Kaplan, Inc.  Firms with few intangibles  Natural resource firm161sLOS 34.k Explain/Evaluate Private Company ValuationSchweser B3 pg 254, CFAI V4 pg 576 Discount for Lack of Control (DLOC)Estimate using reported earnings instead ofnormalized earnings or: DLOC = 1– 1     1+ Control Premium If control premium is 22% DLOC = 1 – 1  = 18.0%  1+0.22  © Kaplan, Inc. 163ers - Exame CFA 41

LOS 34.k Explain/Evaluate Private Company ValuationSchweser B3 pg 254, CFAI V4 pg 576 DLOM Varies With…  Likelihood of IPO, firm sale, or dividends 164  Asset duration  Contractual restrictions  Pool of buyers  Asset risk Estimating DLOM:  Restricted vs. Publicly traded shares  Pre-IPO vs. Post-IPO prices  Put prices© Kaplan, Inc. Free Cash Flow Valuation Other LOS For SS11These LOS are not covered in live class: LOS 31.f Compare  LOS 33.l Evaluate LOS 31.h Evaluate  LOS 34.b Describe LOS 31.m Evaluate  LOS 34.c Explain LOS 32.o Explain  LOS 34.g Explain LOS 32.p Describe  LOS 34.h Compare LOS 32.q Explain  LOS 34.l Describe LOS 33.i Compare© Kaplan, Inc. 166 ©2018 FK Partne

SS 11- Equity InvestmentsLOS 34.k Explain/Evaluate Private Company ValuationSchweser B3 pg 254, CFAI V4 pg 576 DLOC and DLOM: Example Total discount = 1 – [(1 – DLOC)(1 – DLOM)] If DLOC is 18% and DLOM is 15% Total discount = 1 – [(1– 0.18)(1– 0.15)] = 30.3% NOT 33%© Kaplan, Inc. 165 Fixed Income Investments Equity Study Session 11 Discussion Questions CFA Institute Program curriculum, Level II: Volume 4, page 340 Question 1 Volume 4, page 345 Question 13ers - Exame CFA 42

Discussion Questions Question 1Indicate the effect on this period’s FCFF and FCFE of a change in eachof the items listed here. Assume a $100 increase in each case and a 40percent tax rate. A. Net income. 168 B. Cash operating expenses. C. Depreciation. D. Interest expense. E. EBIT. F. Accounts receivable. G. Accounts payable. H. Property, plant, and equipment. I. Notes payable. J. Cash dividends paid. K. Proceeds from issuing new common shares.©LK.aplanC, Inocm. mon shares repurchased. Discussion Questions Question 1 (cont.)E. EBIT: FCFE and FCFF ↑ by $60—due to taxF. Accounts receivable: FCFE and FCFF ↓ byG. $100—due to increased WCInv. Accounts payable: FCFE and FCFF ↑ by $100—due to decreased WCInvH. PP&E: FCFE and FCFF ↓ by $100—due to increased FCInv. I. Notes payable: FCFE ↑ by $100 (net 170 borrowings); FCFF not affected J. Cash dividends paid: No effect K. Stock issuances/repurchases: No effect© Kaplan, Inc. ©2018 FK Partne

SS 11- Equity Investments Discussion Questions Question 1Effect of increase of $100 in (T= 40%)A. NI: FCFE and FCFF ↑ by $100—netB. income is already after taxC.D. Cash operating expenses: FCFE and FCFF ↓ by $60 ($40 tax savings). Depreciation: FCFF and FCFE ↑ by $40 – tax shield Interest expense: FCFE ↓ by $60 ($40 tax savings); FCFF not affected.© Kaplan, Inc. 169 Discussion Questions Question 13 The management of Telluride, an international diversified conglomerate based in the United States, believes that the recent strong performance of its wholly owned medical supply subsidiary, Sundanci, has gone unnoticed. To realize Sundanci’s full value, Telluride has announced that it will divest Sundanci in a tax-free spin-off. Sue Carroll, CFA, is director of research at Kesson and Associates. In developing an investment recommendation for Sundanci, Carroll has gathered the information shown in Exhibits 1 and 2.© Kaplan, Inc. 171ers - Exame CFA 43

Discussion QuestionsExhibit 1. Sundanci Actual 2007 and 2008 Financial Statements for FiscalYears Ending 31 May (Dollars in Millions except Per-Share Data)Income Statement 2007 2008Revenue $474 $598DepreciationOther operating costs 20 23Income before taxes 368 460 115 86Taxes 26 35Net income 60 80Dividends 18 24EPS $0.714 $0.952Dividends per share $0.214 $0.286 Common shares outstanding 84.0 84.0© Kaplan, Inc. 172 Discussion QuestionsExhibit 2. Selected Financial InformationRequired rate of return on equity 14%Industry growth rate 13%Industry P/E 26 Abbey Naylor, CFA, has been directed by Carroll to determine the value of Sundanci’s stock by using the FCFE model. Naylor believes that Sundanci’s FCFE will grow at 27 percent for two years and at 13 percent thereafter. Capital expenditures, depreciation, and working capital are all expected to increase proportionately with FCFE.© Kaplan, Inc. 174 ©2018 FK Partne

SS 11- Equity Investments Discussion QuestionsBalance Sheet 2007 2008Current assets (includes $5 cash in 2007 and 2008) $201 $326Net property, plant, and equipment 474 489 Total assets 675 815Current liabilities (all non-interest-bearing) 57 141Long-term debt 0 0 Total liabilities 57 141Shareholders’ equity 618 674 Total liabilities and equity 675 815Capital expenditures 34 38© Kaplan, Inc. 173 Discussion Questions Question 13A. Calculate the amount of FCFE per share for 2008 by using the data from Exhibit 1.WCInv = [(321 – 196) – (141 – 57)] = 41FCInv = 489 – 474 + 23 = 38(Note: vignette does not mention any asset disposal or show any separate recognition in IS of gain/loss on asset sales).FCFE = NI + Dep – FCInv – WCInv + NB = 80 + 23 – 38 – 41 + 0 = 24© Kaplan, Inc. 24/84 = $0.286 per share. 175ers - Exame CFA 44

Discussion Questions Question 13B. Calculate the current value of a share of Sundanci stock based on the two-stage FCFE model.FCFE2008 = 0.286; FCFE2009 = 0.286(1.27) = 0.3632FCFE2010 = 0.286(1.27)2 = 0.4613;FCFE2011 = 0.4613(1.13) = 0.5213Terminal value: Value2010 =0.5213 / (0.14-0.13) = $52.13 176© Kaplan, Inc. Discussion Questions Question 13C. Describe limitations that the two-stage DDM and FCFE models have in common. Both models are heavily dependent on growth rate estimates in the initial period as well as into perpetuity as well as the duration of the initial, high-growth period. Both models are also reliant on accurate estimation of the required rate of return on equity. Finally, the sudden, ad-hoc drop off in growth rate is applicable to all two-stage models.© Kaplan, Inc. 178 ©2018 FK Partne

SS 11- Equity Investments Discussion Questions Question 13PV Computation:CF0 = 0C01 = 0.3632C02 = 0.4613+52.13 = 98.26I = 14%, compute NPV Value2008 = 40.79 177© Kaplan, Inc. Fixed Income Investments Equityers - Exame CFA 45

Fixed Income Investments Equity ©2018 FK Partne

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Questions – SS11 – Equity: Valuation Free, Cash Flow and Other Valuation ModelsQuestions 1 - 6Beachwood Builders merged with Country Point Homes in December 31, 1992. Both companies werebuilders of mid-scale and luxury homes in their respective markets. In 2004, because of taxconsiderations and the need to segment the businesses between mid-scale and luxury homes,Beachwood decided to spin-off Country Point, its luxury home subsidiary, to its common shareholders.Beachwood retained Bernheim Securities to value the spin-off of Country Point as of December 31, 2004.When the books closed on 2004, Beachwood had $140 million in debt outstanding due in 2012 at acoupon rate of 8%, a spread of 2% above the current risk free rate. Beachwood also had 5 millioncommon shares outstanding. It pays no dividends, has no preferred shareholders, and faces a tax rateof 30%. When valuing common stock, Bernhiem's valuation models utilize a market risk premium of11%.The common equity allocated to Country Point for the spin-off was $55.6 million as of December 31,2004. There was no long-term debt allocated from Beachwood.The Managing Director in charge of Bernheim's construction group, Denzel Johnson, is prepping for thevaluation presentation for Beachwood's board with Cara Nguyen, one of the firm's associates. Nguyentells Johnson that Bernheim estimated Country Point's net income at $10 million in 2004, growing $5million per year through 2008. Based on Nguyen's calculations, Country Point will be worth $223.7 millionin 2008. Nguyen decided to use a cost of equity for Country Point in the valuation equal to its return onequity at the end of 2004 (rounded to the nearest percentage point).Nguyen also gives Johnson the table she obtained from Beachwood projecting depreciation (the onlynon-cash charge) and capital expenditures:Looking at the numbers, Johnson tells Nguyen, \"Country Point's free cash flow (FCF) will be $25 millionin 2006.\" Nguyen adds, \"That's FCF to the Firm (FCFF). FCF to Equity (FCFE) will be lower.\"Question 1Regarding the statements by Johnson and Nguyen about FCF in 2006:A) only Johnson is incorrect.B) only Nguyen is incorrect.C) both are incorrect.Question 2If FCInv equals Fixed Capital Investment and WCInv equals Working Capital Investment, whichstatement about FCF and its components is least accurate?A) FCFF = (EBITDA × (1 − tax rate)) + (Depreciation × tax rate) − FCInv − WCInv.B) WCInv is the change in the working capital accounts, excluding cash and short-term borrowings.C) FCFE = (EBIT × (1 − tax rate)) + Depreciation − FCInv − WCInv.Question 3What is the cost of capital that Nguyen used for her valuation of Country Point?A) 18%.B) 17%.C) 15%.Question 4Given Nguyen's estimate of Country Point's terminal value in 2008, what is the growth assumptionshe must have used for free cash flow after 2008? ______________________ 1 ©2018 FK PartnersTodos os direitos reservados – É proibida a reprodução total ou parcial, de qualquer forma ou por qualquer meio.

A) 7%. B) 3%. C) 9%.Question 5The value of beta for Country Point is: A) 1.09. B) 1.27. C) 1.00.Question 6What is the estimated value of Country Point in a proposed spin-off? A) $144.5 million. B) $178.3 million. C) $162.6 million.Questions 7 - 12Ashley Winters, CFA, has been hired to value Goliath Communications, a company that is currentlyexperiencing rapid growth and expansion. Winters is an expert in the communications industry and hashad extensive experience in valuing similar firms. She is convinced that a value for the equity of Goliathcan be reliably obtained through the use of a three-stage free cash flow to equity (FCFE) model withdeclining growth in the second stage. Based on up-to-date financial statements, she has determined thatthe current FCFE per share is $0.90. Winters has prepared a forecast of expected growth rates in FCFEas follows:Stage 1: 10.5% for years 1 through 3Stage 2: 8.5% in year 4, 6.5% in year 5, 5.0% in year 6Stage 3: 3.0% in year 7 and thereafterMoreover, she has determined that the company has a beta of 1.8. The current risk-free rate is 3.0%,and the equity risk premium is 5.0%.Other financial information:Question 7 2The required return of equity is closest to: A) 6.6%. B) 12.0% C) 9.0%.Question 8The terminal value in year 6 is closest to: A) $16.86. B) $25.29. C) $21.68. ______________________ ©2018 FK Partners Todos os direitos reservados – É proibida a reprodução total ou parcial, de qualquer forma ou por qualquer meio.

Question 9The per-share value Winters should assign to Goliath's equity is closest to: A) $13.55. B) $20.24. C) $16.87.Question 10The free cash flow to the firm (FCFF) is closest to: A) $9.45 million. B) $9.55 million. C) $9.35 million.Question 11The weighted average cost of capital (WACC) is closest to: A) 11.1%. B) 10.9%. C) 10.5%.Question 12The value of the firm, based on the constant growth model, is closest to: A) $153 million. B) $140 million. C) $124 millionQuestion 13 - 18Analysts and portfolio managers at Big Picture Investments are having their weekly investment meeting.CEO Bob Powell, CFA, believes the firm's portfolios are too heavily weighted toward growth stocks. \"Iexpect value to make a comeback over the next 12 months. We need to get more value stocks in theBig Picture portfolios.\" Four of Powell's analysts, all of whom hold the CFA charter, were at the meeting- Laura Barnes, Chester Lincoln, Zelda Marks, and Thaddeus Bosley. Powell suggested Big Picture shouldstart selecting stocks with the lowest price-to-earnings (P/E) multiples. Here are the analysts' comments: Barnes said numerous academic studies have shown that low P/E stocks tend to outperform those with high P/Es. She uses the P/E ratio as the basis of most of her valuation analysis. \"I prefer to use the justified P/E ratio because it is inversely related to the required rate of return.\" Lincoln warned against using P/E ratios to evaluate technology stocks. He suggests using price-to- book (P/B) ratios instead, because they are useful for explaining long-term stock returns. \"Book value is a good measure of value for companies with a lot of liquid assets, and it is easier to calculate than the P/E because you rarely have to adjust book value.\" Bosley prefers the price/sales (P/S) ratio and the earnings yield. \"The P/S ratio is particularly useful for valuing companies in cyclical industries because it isn't affected by sharp changes in profitability caused by economic cycles.\" Marks acknowledges that the P/E ratio is a useful valuation measurement. However, she prefers using the price/free- cash-flow ratio. \"Free cash flow (FCF) is more difficult to manipulate than earnings, and it has proven value as a predictor of stock returns.\"Powell has provided Barnes with a group of small-cap stocks to analyze. The stocks come from a varietyof different sectors and have widely different financial structures and growth profiles. She has been askedto determine which of these stocks represent attractive values. She is considering four possible methodsfor the job: The PEG ratio, because it corrects for risk if the stocks have similar expected returns. Comparing P/E ratios to the average stock in the S&P 500 Index, because the benchmark shouldserve as a good proxy for the average small-cap stock valuation. ______________________ 3 ©2018 FK PartnersTodos os direitos reservados – É proibida a reprodução total ou parcial, de qualquer forma ou por qualquer meio.

 Comparing P/E ratios to the median stock in the S&P 500 Index, because outliers can skew the average P/E upward. The P/S ratio, because it works well for companies in different stages of the business cycle.Question 13Which analyst's quote is least accurate? A) Lincoln's. B) Bosley's. C) Barnes'.Question 14Barnes is contemplating the use of a price/earnings ratio to value a start-up medical technologyfirm. Which of the following is the most compelling reason not to use the P/E ratio? A) The company is likely to be unprofitable. B) P/E ratios for medical-technology firms with different specialties are not comparable. C) Earnings per share are not a good determinant of investment value for medical-technology companies.Question 15Based on their responses to Powell, which of the analysts is most likely concerned about earningsvolatility? A) Lincoln. B) Bosley. C) Barnes.Question 16Based on their responses to Powell, which of the analysts has proposed a method that has the bestchance to work for determining the relative value start-up companies? A) Bosley. B) Lincoln. C) Marks.Question 17Barnes would be least likely to use EV/EBITDA ratio, rather than the P/E ratio, when analyzing acompany that: A) pays a dividend, and is likely to deliver little earnings growth. B) reports a lot of depreciation expense. C) has a different capital structure than most of its peers.Question 18Barnes is considering the four methods previously described to analyze the small-cap stocksprovided to her by Powell. For which method does Barnes provide the weakest justification? A) The PEG ratio. B) The mean P/E of S&P 500 companies. C) The price/sales ratio.Question 19 - 24TOY, Inc. is a company that manufactures dolls, games, and other items to entertain children.The following table provides background information for TOY, Inc. on a per share basis in the year 0:Current Information Year 0Earnings $5.00Capital Expenditures $2.40 ______________________ 4 ©2018 FK PartnersTodos os direitos reservados – É proibida a reprodução total ou parcial, de qualquer forma ou por qualquer meio.

Depreciation $1.80Change in Working Capital $1.70Cost of equity 12.0%Target debt ratio 30.0%Market value of stock $56.00Shares outstanding 5.0 millionInterest expense $7.2 millionCash & short-term investments $40.0 millionTax rate 37.5%Earnings, capital expenditures, depreciation, and working capital are all expected to grow by 5.0%per year in the future.Question 19In year 1, the forecasted free cash flow to equity (FCFE) for TOY, Inc. is closest to:A) $4.31.B) $3.56.C) $4.53.Question 20The value of TOY, Inc.'s stock given the above assumptions, is closest to:A) $64.71.B) $61.57.C) $50.86.Question 21Comparing the current market value of TOY to our estimate of the stock's current market value, itis most likely that at the current market price of $56.00, TOY Inc. stock is: A) fairly valued. B) overvalued. C) undervalued.Question 22Senior management of TOY Inc. is considering selling the company to a rival firm that has offered$450 million. If the current market price represents the fair value of equity and TOY Inc. maintainsits target capital structure, the bid represents a price that is:A) about the same total value of the firm.B) greater than the total value of the firm.C) less than the total value of the firm.Question 23The EV/EBITDA ratio for TOY Inc. is closest to: A) 6.4x. B) 4.3x C) 7.1xQuestion 24One year later the enterprise value increased by 5.0% while the EBITDA is $59.0 million. If theEV/EBITDA for the industry is 7.0×, relative to its peers, TOY is most likely: A) undervalued. B) fairly valued. C) overvalued. ______________________ 5 ©2018 FK PartnersTodos os direitos reservados – É proibida a reprodução total ou parcial, de qualquer forma ou por qualquer meio.

Question 25 - 30The following information was collected from the financial statements of Hiller GmbH, a Germanconsulting company, for the year ending December 31, 2013: Earnings per share = 4.50. Capital Expenditures per share = 3.00. Depreciation per share = 2.75. Increase in working capital per share = 0.75. Debt financing ratio = 30.0%. Cost of equity = 12.0%. Cost of debt = 6.0%. Tax rate = 30.0%. Outstanding shares = 100 million. New debt borrowing = 15.0 million. Debt repayment = 30.0 million. Interest expense = 7.1 million.The financial leverage for the firm is expected to be stable. Hiller uses IFRS accounting standardsand records interest expense as cash flow from financing (CFF).Two analysts are valuing Hiller stock; both are basing their analysis on FCFE approaches.Analyst #1 remarks: \"Hiller is a relatively mature company; a constant growth model is the betterapproach.\"Analyst #1 estimates FCFE based on the information above and a growth rate of 5.0%.Analyst #2 states: \"Hiller just acquired a rival that should change their growth pattern. I think athree stage growth model based on industry growth patterns should be used.\"Analyst #2 estimates FCFE per share as 3.85. Growth rate estimates are listed below, and fromyear 7 and thereafter the estimated growth rate is 3.0%.Question 25The FCFE based on Analyst #1's estimates for the base-year is closest to:A) 3.00.B) 4.85.C) 3.80.Question 26Using the stable-growth FCFE model as suggested by Analyst #1, the value of Hiller stock is closestto:A) 51.58.B) 54.29.C) 57.00.Question 27Based on Analyst #2's estimates, the sum of the terminal value plus the FCFE for year 6 is closestto:A) 60.70.B) 75.80.C) 82.40.Question 28Based on Analyst #2's estimates, the value of Hiller stock is closest to: ______________________ 6 ©2018 FK PartnersTodos os direitos reservados – É proibida a reprodução total ou parcial, de qualquer forma ou por qualquer meio.