Series 79 – Investment Banking Representative Exam Due Diligence & Deal Structuring 3

Question 1

In due diligence, 'customer concentration risk' is identified when:

Accepted Answer

A significant portion of the target's revenue is derived from a small number of customers

Answer

Customer concentration risk arises when a few customers generate a disproportionate share of revenue; losing any one of them could materially harm the business.

Question 2

A 'carve-out' transaction involves:

Accepted Answer

A parent company separating and selling a subsidiary or business division

Answer

A carve-out occurs when a parent company sells or spins off a subsidiary or division, which may involve an IPO of the subsidiary or a direct sale to a strategic or financial buyer.

Question 3

Which of the following best describes the role of a 'fairness opinion' in an M&A transaction?

Accepted Answer

An investment bank's written assessment that the transaction consideration is fair from a financial point of view

Answer

A fairness opinion is issued by an independent financial advisor to the board of directors, opining that the transaction price is fair from a financial point of view to shareholders.

Question 4

In an LBO due diligence process, analysis of the target's debt capacity primarily focuses on:

Accepted Answer

The target's ability to generate sufficient free cash flow to service and repay acquisition debt

Answer

LBO debt capacity analysis centers on projected free cash flow, since the target's operations must generate enough cash to cover interest payments and scheduled debt amortization.

Question 5

A 'go-shop' provision in a merger agreement permits the target company to:

Accepted Answer

Actively solicit competing acquisition proposals from third parties for a limited period after signing

Answer

A go-shop provision gives the target a defined window (typically 30–60 days) post-signing to actively seek superior proposals, providing additional evidence of deal fairness.

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 3