Difficult HL Questions

Question 1

Was is important in last year of TV?

Answer 1

• Stable Capex
• ETR approaches MTR
• Growth aproaches LT inflation
• Returns close to WACC
• High cash conversion
• capex slght above depreciation
• Growth rate close to TV growth

Question 2

Is Wacc larger or smaller bc of IFRS 16?

Answer 2

Often slightly lower WACC due to increased debt weighting, but effect is usually modest.

Question 3

How to derive beta from data?

Answer 3

Collect historical stock and market returns

Calculate covariance between stock and market returns

Divide by variance of market returns

Question 4

Why 10-year bond as risk-free rate?

Answer 4

Long-term horizon matches long-term cash flows

Highly liquid and widely accepted benchmark

Government bond approximates “risk-free” return

Question 5

When should we avoid using the 10-year?

Answer 5

Country is not AAA / sovereign risk present

Company operates in a different currency

High inflation / unstable yield curve

Question 6

What is MIP?

Answer 6

Management Incentive Plan

Stock options

Sweet equity

Ratchet structures

Performance-based shares

Question 7

What is MEP?

Answer 7

A Management Equity Plan refers specifically to the equity ownership structure given to management in a transaction.

It defines:

% ownership allocated to management

Vesting conditions

Leaver provisions

Exit mechanics

Question 8

NWC and TWC

Answer 8

TWC=All Current Assets−All Current Liabilities

Operating Current Assets:

Accounts Receivable

Inventory

Prepaid expenses

Operating Current Liabilities:

Accounts Payable

Accrued expenses

Deferred revenue (if operating)

Question 9

How do DTLs affect goodwill?

Answer 9

Higher DTL → lower identifiable net assets

Lower net assets → higher goodwill

Goodwill = Purchase price – FV net assets

Question 10

What happens if a company factors receivables?

Answer 10

If true sale:
AR decreases
Cash increases
No debt impact

If recourse factoring:
AR decreases
Debt-like liability created
Increases leverage

Question 11

How does factoring affect valuation?

Answer 11

True sale → improves working capital

Recourse → treated as debt-like in EV bridge

Question 12

What is IFRS 15 PoC impact?

Answer 12

Revenue recognized over time based on performance obligation.

Impacts:
Revenue timing
Margin timing
Working capital (contract assets / liabilities)

Question 13

How does IFRS 16 affect leverage in an LBO?

Answer 13

Lease liabilities increase net debt.

→ Higher entry leverage
→ Higher ND/EBITDA