Lunch

What’ll it be gents?

Surf and Turf would be great right now

I am about to start FSA, has that been done alerady? Been busy with work for a few days.

Let’s hit up the beginning of equity, my favorite section after FSA

“Hungry Fella? There ya go!” Bonus: Name that movie. The Equity Valuation Process -------------------------------------------------------------------------------- Question 1 - 88287 Minority shareholders often do not have control of the price at which the firm will be sold or merged with another firm. In order to safeguard their interests, minority shareholders will often seek an analyst’s opinion of the value of the firm. This opinion is referred to as a: A) second opinion. B) minority opinion. C) fairness opinion. -------------------------------------------------------------------------------- Question 2 - 88257 Disclosures of accounting practices and basis are often made in what part of a firm’s financial reports? A) Footnotes to the financial statements. B) Cash flow statement. C) Income statement. -------------------------------------------------------------------------------- Question 3 - 88289 How can we account for different valuations for the same firm from several analysts even if they use the same required returns? A) The analysts may be biased with personal opinions about management. B) Valuation models contain random errors. C) Valuations are based on the analyst’s expectations. -------------------------------------------------------------------------------- Question 4 - 88174 Joe Dentice has an opportunity to buy 5% of Gold Star Oil, Inc., a closely held oil company. He wants to value the company so as to be able to make a decision on the fair price to pay for the investment. Part 1) List the steps in the top down valuation approach as it is applicable for Gold Star investment. Forecast the growth of: A) Gold Star, the growth of each firm in the industry, and then the growth of the oil industry. B) the overall economy, growth of the industry, and the growth rate of Gold Star. C) each firm in the oil industry, the growth rate of the oil industry, and the growth rate of the economy. Part 2) Which of the following models would be most suitable to value Gold Star? A) Absolute valuation. B) Relative valuation. C) Liquidation value. Part 3) Which discounts must be taken into account while valuing the investment opportunity? Joe should take into account the: A) marketability, liquidity, and control premium in the valuation. B) marketability, liquidity, and minority discounts in the valuation. C) marketability, liquidity, and majority discounts in the valuation. -------------------------------------------------------------------------------- Question 5 - 88332 A comparison between a firm’s going-concern valuation and its liquidation value will show that the going-concern value will always be: A) greater than the liquidation value. B) less than the liquidation value. C) equal to the present value of the expected continued operation of the firm.

1:C 2:A 3:C 4-1:B 4-2:B (not sure about this) 4-3:B 5-A

Here we go: 1)C 2)A 3)A maybe C 4)1 - B 4)2 - B 4)3 - B 5)C

1)C 2)A 3)A 4)1 - B 4)2 - C 4)3 - B 5)C

1)C 2)A 3)A 4)1 - B 4)2 - C 4)3 - B 5)A

1)C 2)A 3)A 4)1 - B 4)2 - B 4)3 - B 5)A

I am sticking with C for 5…never trust a statement that say ALWAYS…

I’m gonna say: 1)C 2)A 3)C - Although I think this is a debatable question 4)1 - B 4)2 - A 4)3 - B 5)C

  1. C 2) A 3) C 4 1)B 4 2)B 4 3)A 5) C

Answers: 1) C 2) A 3) C 4 1)B 4 2)a 4 3)b 5) C

ditchdigger2CFA Wrote: ------------------------------------------------------- > “Hungry Fella? There ya go!” Bonus: Name that > movie. > Next Friday - when he gives that dog bolgna through the fence and the dog eats it all, and then he gives the dog the ‘special’ brownies this is the scene when they are trying to break into that house across the street to grab that cash is that the movie you were thinking of?

1.) dont know, C 2.) A 3.) C 4.) B, C, A(can’t remember this one) 5.) C

I just got to these, only one i missed was 4c. Question- is it B using “minority discounts” because the guy is buying only 5%? and if he bought let’s say something big and controlling like 50% it would’ve been answer A for control premium? I didn’t realize there was a diff b/t minority discount and control preimum- i thought control premium more or less covered any portion of control and what discount/premium you’d put on it. apparently I don’t have this concept down. all in all, a successful crunch for bannisja though. Joe Dentice has an opportunity to buy 5% of Gold Star Oil, Inc., a closely held oil company. He wants to value the company so as to be able to make a decision on the fair price to pay for the investment. Part 3) Which discounts must be taken into account while valuing the investment opportunity? Joe should take into account the: A) marketability, liquidity, and control premium in the valuation. B) marketability, liquidity, and minority discounts in the valuation. C) marketability, liquidity, and majority discounts in the valuation.

B

4C Your answer: A was incorrect. The correct answer was B) marketability, liquidity, and minority discounts in the valuation. Since Gold Star is closely held, the investment is not easily marketable. Closely linked is the fact that the investment cannot be easily liquidated and the cost of selling the investment needs to be discounted from the value. Finally, since only 5% of the stock is being invested in, the control of the operations of the company still remains with the majority shareholders. This lack of control needs to be quantified and discounted from Gold Star’s valuation. Movie - Ace Ventura, Pet Detective Jim Carrey used to literally drink 7-8 Starbucks a day which is what gave him that maniac mentality.

Bannisja, I think it goes like this, you pay a premium for the control, you wouldn’t pay less to have control. As with minority interests, it is discounted b/c you have no control over what the company does. you just go along for the ride.