Series 79 – Investment Banking Representative Exam Due Diligence & Deal Structuring

Question 1

What is the primary purpose of due diligence in an investment banking transaction?

Accepted Answer

To verify and validate material facts about the target company before closing

Answer

To negotiate the final purchase price before signing

Answer

To prepare marketing materials for potential buyers

Answer

To register securities with the SEC on behalf of the issuer

Question 2

Which type of due diligence focuses on examining a company's financial statements, accounting policies, and historical earnings quality?

Accepted Answer

Financial due diligence

Answer

Legal due diligence

Answer

Operational due diligence

Answer

Environmental due diligence

Question 3

A 'quality of earnings' (QoE) analysis performed during due diligence primarily assesses:

Accepted Answer

Whether reported earnings reflect sustainable, recurring cash flows

Answer

The accuracy of the target's product pricing strategy

Answer

The adequacy of the target's employee benefit programs

Answer

The enforceability of the target's customer contracts

Question 4

In an M&A transaction, a 'virtual data room' (VDR) is primarily used to:

Accepted Answer

Provide a secure, controlled environment for sharing confidential due diligence documents

Answer

House executed transaction documents after closing

Answer

Store the buyer's internal valuation models and bid strategies

Answer

Archive regulatory filings submitted to the SEC

Question 5

Which document typically governs the due diligence process and outlines the terms under which confidential information will be shared with a potential acquirer?

Accepted Answer

Non-disclosure agreement (NDA)

Answer

Letter of intent (LOI)

Answer

Definitive purchase agreement

Answer

Fairness opinion letter

Question 6

Legal due diligence in an M&A transaction typically includes review of which of the following?

Accepted Answer

Pending litigation, regulatory compliance, and material contracts

Answer

Customer satisfaction surveys and net promoter scores

Answer

Gross margin trends over the past three years

Answer

Capital expenditure budgets and depreciation schedules

Question 7

During due diligence, 'normalized EBITDA' adjustments are made primarily to:

Accepted Answer

Remove non-recurring items and owner-specific expenses to show sustainable operating earnings

Answer

Inflate the target's reported earnings to justify a higher purchase price

Answer

Convert GAAP earnings to a cash-basis accounting measure

Answer

Reconcile differences between the target's domestic and foreign operations