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How can an acquisition create value for the combined entity’s shareholders but not for the acquirer’s shareholders?
What is the goal of setting performance targets? What are some of the pitfalls inherent in the way companies sometimes set targets?
What are the two categories of long-term value drivers? Provide some examples of potential long-term value drivers for a company that you are familiar with.
Define a granular perspective for performance measurement. Why is this crucial for performance measurement at large companies?
Provide examples of how the best owner of a business has changed over time. Give reasons for these changes.
The forward-rate and spot-rate methods for discounting foreign-currency cash flows are equivalent if interest rate parity holds.
Discuss the differences between the current, temporal, and inflationadjusted current methods for translating the financial statements of acquisitions.
Are there conditions under which you should consider using a local market risk premium and a local beta estimate for a valuation.
Explain under what conditions a divestiture will lead to earnings per share (EPS) dilution or accretion if the proceeds from the divestiture.
Describe the key reasons why divesting a business can create value for shareholders, even when the business is still in the early stages of its life cycle.
The company’s controller is concerned because the sale would result in overcapacity of 25 percent in the company’s information technology (IT) center.
An executive is reluctant to sell a high-performing business unit, arguing that the sale would dilute the company’s ROIC to a level below the WACC.
An oil company wants to divest its low-growth chemicals division, which has an estimated stand-alone value of around $5 billion.
An electronics conglomerate intends to divest its high-growth energy division, which develops and manufactures solar panels, windmills, and other “green energy”
Define optimal capital structure. What is the relationship between optimal capital structure, corporate value, and cost of capital?
The degree of company financial risk is measured and reported by independent rating agencies such as Standard & Poor’s and Moody’s.
Describe the process a manager should employ to establish an effective capital structure and payout policies.
What are two best practices for testing the sum-of-the-parts valuation based on multiples of peers? Why are they considered best practices?
When a company incorporated in a country with a high tax rate does business in countries with lower tax rates, it will report an effective tax rate.
When is the difference between reported taxes and cash taxes likely to be greatest? When will it be smallest? Can it reverse?
What are the three steps to assess the impact of nonoperating expenses and one-time charges on cash flow projections?
In year 0, SmoothCo has $50 million in cash and $50 million in inventory, financed by $100 million in equity.
What are some of the more common nonoperating items and one-time charges that should be excluded from operating expenses?
Estimate the value of leased assets. If you misestimate the average life to be 10 years, how large will the valuation error be?
The company pays an operating tax rate of 30 percent. Using the lease data, what is the after-tax operating profit adjusted for capitalized operating leases?