AIFA AIFA Quantitative Methods & Financial Modeling 2

Question 1

A company's EBITDA is $5 million and its total enterprise value is $30 million. What is the EV/EBITDA multiple?

Accepted Answer

6.0x

Answer

EV/EBITDA = $30M / $5M = 6.0x, a common valuation multiple used to compare companies across capital structures.

Question 2

In regression analysis, what does the R-squared (R²) value represent?

Accepted Answer

The proportion of variance in the dependent variable explained by the independent variable(s)

Answer

R² measures the goodness of fit, indicating what percentage of the variance in the dependent variable is explained by the model's independent variables.

Question 3

What is the primary purpose of sensitivity analysis in financial modeling?

Accepted Answer

To test how changes in key assumptions affect the model output

Answer

Sensitivity analysis reveals how changes in key inputs (e.g., revenue growth, discount rate) affect model outputs such as valuation or NPV.

Question 4

A project has an NPV of $0 when discounted at 12%. What does this tell you about the project's internal rate of return (IRR)?

Accepted Answer

The IRR equals 12%

Answer

By definition, the IRR is the discount rate at which NPV equals zero; therefore, if NPV = $0 at 12%, the IRR is exactly 12%.

Question 5

Which valuation approach determines value by analyzing the prices paid for comparable companies in recent merger and acquisition transactions?

Accepted Answer

Precedent transaction analysis

Answer

Precedent transaction analysis values a company based on multiples paid in historical M&A deals for similar businesses, reflecting acquisition premiums.

AIFA - Applied Investment & Finance Analyst Practice Test

AIFA - Applied Investment & Finance Analyst Practice Test

AIFA AIFA Quantitative Methods & Financial Modeling 2