Few Interview Questions
Company A has 30x P/E and its net income has a annual growth of 30%; whereas Company B has 10x P/E and its net income has an annual growth of 10%. Which Company will you invest?
A Company's EBITA is 100mm, and you are purchasing the Company at Year 0 at 10x EV/EBITDA. Assume the Company has no debt and EBITDA grows 10% annually and the cash payout is 5% of the EV annually. Exit in Year 5 with the same multiple 10x. What's the IRR without using a calculator?
Hi robertMondavi, check out these resources:
Any pros willing to rescue this discussion? HEvy @jsb.90" Shane.gong
I hope those threads give you a bit more insight.
Bump it up
Indifferent, since each has a PEG of 1x.
15%, because you get 5% back in cash payments each year plus 10% on the EV growth each year. Similar to a bond trading at a discount that pays you 5% interest each year plus 10% principal appreciation each year.
Here are my thoughts on this question, and please correct me if I'm wrong. If you buy Company A at 30x P/E, its income will grow 30% for the next 3 years, where as you buy Company B at 10x P/E, its income will only grow 10% for the next three years. If earning for each company at year zero is the same, then essentially you are paying 3x the price of Company B for Company A, however, 3 years later, Company B's income will grow (1.3)^3, where as Company A's income will only grow (1.1)^3, so now the income is only a factor of (1.3)^3/(1.1)^3=1.65, and now Company A will be sold at 1.6530 and Company B will be sold at 110. So wouldn't Company A generates a higher return in this case?
Would the IRR be little higher or lower than 15% depending on the specific cash payout time?
2.15%
As someone who quite literally never looks at public companies in lower MM buyout, these questions spooked me because honestly I forgot the "theoretical" way of doing it. Having said that, your answer is basically identical to how I would answer having not studied in quite some time. Makes me feel a little better.
Reiciendis consequatur commodi autem maiores eum corrupti nam laboriosam. Cumque omnis id fugit delectus in assumenda aut sit. Eos dolore architecto assumenda dolores cupiditate consectetur dolor error. Sunt est placeat est ducimus ut. Architecto vero architecto voluptatibus quod illum esse totam.
Tempore quisquam possimus et aut. Iusto id nemo consequatur quo pariatur aut. Impedit cumque quo ut ea voluptatem velit sunt.
Quis dolorum quia sapiente. Commodi voluptatem cum nobis. Voluptatem et eaque nulla et est fuga.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...