Read carefully the statements on each item.

On the space provided after each number, write the

correct word or phrase asked or described in each item in UPPERCASE. Avoid using acronyms. Avoid using
special characters (i.e., dash, hyphen, period, asterisk, etc. Use single space only between words. Misspelled
answers will be marked incorrect. (1 point each)

It is the amount of cash available for distribution to both debt and equity claims of the
business or asset.*
1 point

Your answer

It represents the net investment in current assets such as receivables and inventory
reduced by current liabilities.*
1 point

Your answer

It pertains to cash outflows made to purchase or pay capital expenditures.*

1 point

Your answer

It is the cash available to common shareholders only after paying operating expenses
and settling cash flow transactions to creditors and preferred shareholders.*
1 point

Your answer

It is the total amount of loan repayment and the interest expenses, net of income tax
benefit.*
1 point

Your answer

It is the value of the company in perpetuity or in a going concern environment.*

1 point
Your answer

This approach is used to determine the business worth which includes comparative
private company sales data to the pricing estimate.*
1 point

Your answer

This ratio is used to determine the appreciation of the market to the value of the
company as compared to the value reported under the balance sheet or Statement of
Financial Position.*
1 point

Your answer

In this method, analysts use the expert opinion of professional practitioners to

estimate the business selling price.*
1 point

Your answer

This is another term for dividend-yield ratio.*

1 point

Your answer

It is the disposal of the assets of an entity or business segment often via sale to third
party.*
1 point

Your answer

It is formed when two companies combine to form another company.*

1 point

Your answer
It is a process of validating representations made by a seller, normally to an investor.*
1 point

Your answer

This type of diligence focuses on the data and hard evidential information.*
1 point

Your answer

This type of diligence is focus to cover both quantitative and qualitative areas of the
business.*
1 point

Your answer

This type of diligence is concerned with employee motivation and compensation

packages.*
1 point

Your answer

This is one of the factors in diligence process which serve as the best support for
financial position and financial performance of the company including their cash
flows.*
1 point

Your answer

This is the final stage in merger and acquisition where the execution of an agreement
and reincorporation is needed.*
1 point

Your answer
It pertains to other valuation techniques in which the earnings of the business in
relation to the investment made is measured.*
1 point

Your answer

It is the product of weighted average profits and weighted average dividend payout.*
1 point

Your answer

This factor in due diligence process provides an indication on how volatile the value of
the company in the market.*
1 point

Your answer

This type of divestiture occurs when an initial public offering is performed for up to
20% ownership of a subsidiary and the parent company retains control of the 80%.*
1 point

Your answer

In this type of divestiture, a business segment of the parent company is also

separated and made into an independent entity.*
1 point

Your answer

It is also called as dividend payout where the company uses the estimated future
dividends that can be paid out by the business.*
1 point

Your answer
It is the target’s value which is calculated based on its projected future cash flows with
appropriate discount rate.*
1 point

Your answer

True or False
Tick True if the statement is correct and False if the statement is wrong.

As to source of financing, the business may consider both debt financing and equity
financing.*
1 point

True
False

In computing for the net cash flows to the firm using the indirect approach, non-cash
charges are added to net income available to preferred shareholders.*
1 point

True
False

Depreciation, amortization and provision for doubtful accounts are considered as non-
cash charges*
1 point

True
False

In computing for the net cash flows to the firm, cash flows as to operating activities,
investing activities and financing activities are considered.*
1 point

True
False

In computing for the net cash flows to the equity, debt service and dividends on
preferred shares are added to the net cash flows to the firm.*
1 point

True
False
The present value factor is used as discount factor for DCF Analysis.*
1 point

True
False

Comparative company analysis includes both qualitative and quantitative factors.*

1 point

True
False

Book-to-market ratio measures how much the market perceives the value of the
company as compared to what it actually earns.*
1 point

True
False

EBITDA multiple can be computed through dividing the earnings before interest,
taxes, depreciation and amortization to book value per share.*
1 point

True
False

Heuristic pricing method is sufficiently supported by statistical analysis.*

1 point

True
False

Corporate due diligence is concerned for the protection of the public or evaluation of
the operations of the company for the public interest.*
1 point

True
False

The external environment analysis focus on EBITDA margin and return on invested
capital.*
1 point

True
False
Technological advancement and tax management strategies are considerations on
why companies are forming mergers and acquisitions.*
1 point

True
False

Negotiation is the stage in merging and acquisition where comprehensive valuation

and sensitivity analysis are conducted.*
1 point

True
False

If the divestiture value is lower than going concern value, divestiture will increase the
value of the selling company.*
1 point

True
False

Using the dividend paying capacity method, an investor can determine the length of
time to recover the investment.*
1 point

True
False

Spin-off is a type of divestiture in which a business segment of the parent company is

separated and is made into an independent new company.*
1 point

True
False

The first stage in merging and acquisition is pre-acquisition review.*

1 point

True
False

 Review of operational policies, process and procedures are paradigm of hard due
diligence.*
1 point
True
False

The review and audit of financial statements are the focus of soft due diligence.*
1 point

True
False

Quality assurance and customer service and processes are the focus of soft due
diligence.*
1 point

True
False

Profitability trend analysis is used to categorize the volatility of companies*

1 point

True
False

In due diligence process investors should consider stock price history except stock
dilution possibilities.*
1 point

True
False

In due diligence, risk management is given focus on market expectations and share
ownership.*
1 point

True
False

If divestiture value is same as going concern value, divestiture will have an impact to
the selling company’s value.*
1 point

True
False

PROBLEM SOLVING
Analyze and solve the given problems. Tick the button of the correct answer.
The company has cash flows from operating activities of P4,000,000; cash flows from
investing activities of P2,500,000; cash flows from financing activities of P5,000,000
and interest expense (net of tax) of P500,000. How much is the net cash flows to the
firm?*
3 points

P 3,000,000
P 2,700,000
P 1,000,000
P 7,000,000
P 2,000,000

The business has invested P4,500,000 in fixed capital. Earnings before interest, taxes,
depreciation and amortization (net of tax) is P7,000,000 while tax savings on non-cash
charges amounted to P200,000. The business anticipated a reduction of P1,500,000
in working capital. How much is the net cash flows to the firm?*
3 points

P1,200,000
P 800,000
P1,000,000
P4,200,000
P 900,000

The business has income available to ordinary shareholders of P8,000,000 and

income to preferred shareholders of P5,000,000. Purchases of capital investment
amounted to P7,000,000 and sale of capital investment totaled P3,000,000.
Depreciation and amortization booked was P600,000 while provision for doubtful
account was P400,000. The business incurred interest expense (net of tax) of
P500,000. The business expected an addition of P2,000,000 of working capital. How
much is the net cash flows to the firm?*
3 points

P 12,500,000
P 9,200,000
P 7,500,000
P 6,500,000
P 11,500,000

The business borrowed a long-term debt of P6,000,000 from a commercial bank. Debt
service amounted to P175,000. Proceeds from preferred shares amounted to
P5,000,000 while dividends paid to preferential shareholders was P2,700,000. The
business has net cash flows to the firm of P4,500,000. How much is the net cash flows
to equity?*
3 points

P 18,025,000
P 3,625,000
P 13,425,000
P 12,625,000
P 12,975,000

The business has net cash flows of P3,000,000, P5,000,000, P7,000,000, P8,000,000
and P9,000,000 respectively for 5 consecutive years. The company is expecting 20%
cost of capital. What is the growth rate?*
3 points

35.27%
35.89%
31.61%
42.50%
24.57%

Celtis is a publicly listed company with market value of P15.00 per share; dividend per
share of P25.00; earnings per share of P5.00 and net book value per share of P60.00.
How much is the price-earnings ratio?*
3 points

P5.00
P6.00
P9.00
P3.00
P4.00

Maple Co. is a publicly listed company with market value of P40.00 per share;
dividend per share of P120.00; earnings per share of P4.00 and net book value per
share of P80.00. How much is the book-to-market ratio?*
3 points

P 15.00
P 12.00
P 20.00
P 10.00
P 30.00

The business has weighted average dividend payout of 40% and weighted average
dividend yield of 10%. The weighted average profit computed is P1,500,000. What is
the value of the company?*
2 points

P 9,000,000
P 60,000
P 6,000,000
P 375,000
P 4,000,000

The business is asking P700,000 in exchange of 40% ownership in the business. The
cost of investment is P437,500. Assuming that 100% of the company is sold, how
much is the return on investment?*
2 points

25%
55%
75%
60%
65%