BFIN 7225 -MERGERS & ACQUISITIONS- FINAL EXAM - FALL 2017 Student Name 2 points)

Question

BFIN 7225 -MERGERS & ACQUISITIONS- FINAL EXAM - FALL 2017 Student Name 2 points) 1. What is the main source of financing in a leveraged buyout? a. Debt b. Equity c. Assets d. Cash (2 points) 2. Which characteristics would represent an attractive LBO candidate? a. Irregular cash flow and substantial assets b. High capex requirements and small asset base c. Predictable cash flow and substantial assets d. Substantial assets and insubstantial cash flow 3. What is a private equity firm considered in an LBO (2 points) a. A financial sponsor b. A strategic investor c. A passive investor d. A limited partner What can potentially be reduced or eliminated in the event that economic or operating performance declines? 4. (2 points) a. Growth capex b. Assets c. Maintenance capex d. PP&E; What is the primary metric used by sponsors to gauge the attractiveness of a potential LBO as well as the performance of their existing investments? 5. (2 points) a. DCF b. IRR c. Precedent transactions analysis d. Comparable companies analysis BFIN 7225-Final Exam - Fall 2017 20171030.docx Page 1 of 10

Explanation / Answer

As per rules I will answer the first 4 sub-parts of this question

1. Debt

(In a LBO, buyer borrows a significant portion of the requisite funds to purchase an asset from the seller)

2. c-Predictable cash flow and substantial assets

( It is easier to borrow money against strong asset base and easier to service debt with predictable cash flows)

3. a. financial sponsor

(The leveraged buyout transaction is orchestrated by a private equity firm which is called a financial sponsor . It invests a small amount of equity and and uses leverage to fund the remaining consideration.)

4. a. Growth capex

(Growth capex is used to buy new assets. In case of economic performance decline, the company can avoid buying such assets)

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