Comps Test Questions
Hey folks, I've been working through materials for recruiting prep and had a couple questions. Would love some help if anyone knows how to answer these:
1) Which of the following statements is most correct about building a
A) Using the peer group's average multiple is preferable to using the peer group's median multiple when you suspect significant outliers.
B) forecasts are available, using EV/next year EBITDA is always preferable to valuation using EV/LTM EBITDA.
C) Valuing the share price of a company based on the P/E of its peers is not as useful as valuing based on the EV/EBITDA of its peers when the target and peer group have widely differing leverage.
2) Two businesses both have the
A) Company A is undervalued relative to Company B
B) Company B is undervalued relative to Company A
C) Company A will have a lower Company B
D) Company A & B are properly valued relative to one another on an EV/EBITDA basis
3) LongCo and ShortCo are two companies that are identical in every way, except that LongCo's management ascribes longer useful life estimates for its assets than ShortCo's. Assume this decision has no effect on the taxes either company pays (i.e. they pay the same tax), and assume the market is valuing LongCo and ShortCo correctly. Which of the following statements is correct?
A) EV/ is a preferable multiple to P/E for comparing these two companies.
B) Both companies will have identical P/E multiples.
C) LongCo will show a higher EV/BIT multiple than ShortCo.
D) Both companies will have identical EV/EBIT multiples.
E) EV/EBITDA is a preferable multiple to EV/BIT for comparing these two companies.