Series 79 – Investment Banking Representative Exam Due Diligence & Deal Structuring 2

Question 1

In an asset purchase transaction, which of the following is a primary advantage for the buyer?

Accepted Answer

The buyer receives a step-up in tax basis for acquired assets

Answer

In an asset purchase, the buyer can step up the tax basis of acquired assets to fair market value, increasing future depreciation and amortization deductions and reducing taxes.

Question 2

An earnout provision in a deal structure requires the seller to receive additional consideration contingent upon:

Accepted Answer

The target achieving specified future financial performance milestones

Answer

An earnout ties a portion of the purchase price to future performance metrics such as revenue or EBITDA targets, bridging valuation gaps between buyer and seller.

Question 3

A 'material adverse change' (MAC) or 'material adverse effect' (MAE) clause in a purchase agreement primarily allows:

Accepted Answer

The buyer to terminate the agreement if a significant negative event occurs before closing

Answer

A MAC/MAE clause gives the buyer the right to walk away from the deal without penalty if a significant adverse development materially impairs the target's business before closing.

Question 4

In deal structuring, an indemnification escrow arrangement typically serves to:

Accepted Answer

Provide the buyer with recourse for post-closing breaches of representations and warranties

Answer

An escrow holdback retains a portion of the purchase price to compensate the buyer for losses arising from the seller's breach of representations, warranties, or indemnification obligations.

Question 5

A 'working capital adjustment' in a purchase agreement is designed to:

Accepted Answer

Ensure the buyer receives the target with a normal level of operating liquidity at closing

Answer

Working capital adjustments true-up the purchase price so that the buyer receives the target with a normalized level of net working capital, preventing the seller from draining cash before closing.

Series 79 – Investment Banking Representative Exam Practice Test

Series 79 – Investment Banking Representative Exam Practice Test

Series 79 – Investment Banking Representative Exam Due Diligence & Deal Structuring 2