VAULT GUIDE TO FINANCE INTERVIEWS 2008 EDITION is made possible through the generous support of the following sponsors: 3 merratuynchThe meé ia’s watching Vault! Here’s a sampling of our coverage. For thse hoping to climb the lar of success, Val’) insights ar picts fon the wa 0 prepare fore jobsearch.” “IVaut ide! ake fr excelent starting point for jb hunters and shouldbe purchased by acador bari Yor tha ca ‘hexon and imivoraty ateor senor” “covery Joust “The granada of worker sites.” “U's! Awe & Wort Report “A bile 969.7 ‘One of Forbes! 33 “Favorta Sas" | To got tho unvaried scoop, check out Vault. aul ha 2 w th of ntermation about major emoloyers and job "ino Washington Post ‘Ned by sw fm and what to sxpactonco thay get thar” aul (conde the sony 0 VAULTVAULT GUIDE TO FINANCE INTERVIEWSVAULT GUIDE TO FINANCE INTERVIEWSACKNOWLEDGMENTS ‘Wear exten rt to Vu oie a orl thle inde eo, production aed mackeing process. ilo wuld ko skool he Sport of ernest, lets employes, iy and Heh. Tak you!Table of Contents INTRODUCTION ‘THE FINANCIAL SERVICES INDUSTRY “The Faace Interview: An Overview eetions VALUATION TECHNIQUES How Mosh ie Wot? asic Acsunting Conc st Vaation Discos Cash Few (DC) Compete Teetions ‘Mulipl Anas or Coaabe Company Arts Qeesons EQUITY ANALYSIS AND PORTFOLIO MANAGEMENT Invest Mangan and Patio Theory cussns stocks guy ve. Debt (Stacks v= oe) Sek Temiology veto SEREARTRGR OTST, VAULT tit 19 20 28 a o nBONDS AND INTEREST RATES Pring Bonds st of ito on Bon es Qeesons CURRENCIES Influence of nese Rae on Foreign Exchange Inflsnce of Ita o Feri Exch opal Matt Fain schange Rae Etec o Earigs est of Pohang Rats on rest Rats ad naton eetons OPTIONS AND DERIVATIVES ‘The Wi Wes of France Options Wing Options Options Pring uss SRI STS, Wauensatitt wm vos 109 Luo usMERGERS & ACQUI 321 Why Net Megs? mm stock Snaps Cath OF i Mg Acne 0 ‘Wil That Be Ca or Sek? 1 Acai va Diatve Mer a8 cession: 139 BRAINTEASERS AND GUESSTIMATES 133 ‘Aciog Goesstinaes 14 eestor i FINAL ANALYSIS 147 APPENDIX 149 raes Glossary 10 tot th bors 1s SUMIRSSSET. VAM tHEINTRODUCTIONLanding a Gig Money makes te word go round, ant Dae i charge of money ae Be Fmci Hane it fr lve? The fend nays eh 2 compete el, ut lage pr the glamour ad prsige aga ote ‘eting reasoning wth ny ne OF cou, he ustndng lars plain teh of pulls wel. (Us you en dunk» basket tow So whats the ser to Lanting 8 fiance ie? Nataly ening oppo theft sp. May hance fis have sce oncaus ‘eating pene. Iyomte nclog® or gad eho peal bane coal), check with he carer series oie tase whch fare omg recat your camps. Ite company you ve gt your eo des ame 0 {Your soa, don't esa Many fins accept esomes Hom non arte {eto Check the ese eto Hi ut si your one. Fie ‘Web sts areal a god bt forse ot of shea laking chang jobs or Crees. Ado, check wth ends nt alamo pein a sei frm or inthe finance Inds opel ‘ialy vey entero profes pet ht otro outers your positon he et porn ale in geting jo i king a ged ‘fees you don corse of in youritrviews as sorscane wo can do the pant who wl nat he compan, usa iepag cane of gig ‘mae sone he fn, nein your esi, thinks yep inerviewers y being eon a nels Ths ie wil famine you ithe qusion you hay twee ine coun of Youre [he yo ce Soa ean expect fl 9 make se you can wore der prs, te he compu’ cu apd exe youre aes cacropporunites ca be oly ivi several eaepres, most ‘ear apa ad tea ace postions ats epee ke Dell Gr The Caca-Cals Compa (ao rele tapos Fes") Thee onsicale movement eto hs poos — Fakes eave wk pss inna, wih pate ety Fm, General, ie pace fr ost nace professionals see a a parver oc managing cicero a hank, 0Se ee eect) aed Se ee ey www.vault.com/finance VAULT sti8|THE FINANCIAL SERVICES INDUSTRYThe Finance Interview: An Overview, ‘a demain pstons one ln! a uri In Hance fe ‘S oppeats termes fr such an cairn Tote an applies ‘mig nerves in nance tonal vv tee o far rnd of interviews general inseasng i ath rena To es a spins imerewing tats Isis sry that ecasinally 2 bank efance {piestons sch a How mary’ plne arcane he United ‘Ses ight a2” conottna questions such "Why soul ive thie job Your ee dosnt oor profile” Fie may as 3a Specie an died gues abot your ade i college ot buses Shoo, event your school ois pais sik questions, Aer fems Ievcw ands my be terpered eh semily cal sn end ‘oppor to mest your prspeive cower, your seemingly eval, Sone sesining you at wel. (Read Dodoo mich) Ther te every to pr he ince tng cee: he“ pa” and the "sci par" The “ft pa” Is wher he rng tm pes ‘wheter o mt 96 mo hit pups elie The "tee a ‘whe the irvewe aes Soran an techie ils. I 00 oho he bsecoseps aan sa scouing Jour ieee il eve (igt) tt yo ar tr ) terested ne portion ot 2veot compact enowh Mae th od, Wha god del of is bose {sdevacdtlping you ace he techie pat of Hane ime, 8 ‘exubly porns at you nal he erie, vig Ut Yo se foment the people i he grup woul ike work ih AS you 20 ‘hough rating nine mervews,uersané hat you cane wt sounelMbat nn fe exible eoaugh ote people te 3 Boe Be ‘The fit interview ‘They clit O'Hare spt tet he Asp eo ewer cep-yonupperio-teaplringin apo tes. They also cll he fe Sanden en ait freight hs wth i pron‘coca, wie your promance a te fei pay depends — ‘heap ft sage om our proality Ht aa depende on Your are "er your ality ory youre aa god fsa inestmen ke, el mana and oInater wor vier Wi 2 9 ‘gue ou wa your aude ards wrk is how tested You ae are appying rm a hard worker ‘Asa peer le, you soul emphasize ow had you ave worked i te Dt, ing eviere of our byte ona les wok a pa. Yo ove make ings up or pected ts heres ang 3d wane ‘hough sh Bata ng Sys obe turin interes" somebody ‘nvesimes ankrs nd hers fiance wht hy ike ot abe heir jj ey vl oa ily tk sou te fng bees. Be bones abut is “nla pr ofthe jab and envnce pr nevewer tht yo a0 ale Foes, you were a re an hao wake up a 08 ery morig inthe zing cl, all ean, ik abot F300 Pot ouel doh school by woking jobs, enon a te. And 20 perience psy, ast skid tebe a nee pa oF {ate ph you ae choosing Got safe hands? As wile, Gane interviews wil boc aig out ‘whether you can handle the mespnsTty reed of the poston Uden cosiering at many es WH ane potas iponuiiy may men ming decsons ws miliaris OF ‘alu. Aimer willy sd fig oi ove gots ann wor be ‘roping te ball. “Teis sn real anlng cong hone er out sie has, “The ens “Can sve his pesen his miso do ‘ople what hands rte anes who advance nthe con They a aches th hades wove buy ee be esc compe” Make fre ye ne up exces of hing respnshily and aringsompes, ‘alloc obs done ight SEA. wluer sitAmind to plek things apart ‘The world of hance involves lot of uber enuching a eae ‘do have to have an analytic ming if you are going to sueeed. Epa one ‘ajo You've gto have areal logis, mathematical hea” Make ue jou fave examples of your pobemsoling nd analyte see, arc hos volving quai eal T-E-AM! Go team! Teamvo sa poplar burwor fr employes ofall ines. Exe ‘ance postion (net, pra, fr each egies that ah ele ‘erly with thee = wheter in imvesmer baking dl ame ‘markers at ge sopscn. Inervewer wil sk questions fake Sure hat you ve experince and hae exceld in ea stations. Sas, ou can tea at hoe ny dye oes abt te winning macnn as, Bu heel he eto pga tacos whic a alo ep sci you teamserk abiiy ~ previews wore experee, olumee ties, oseol work it eas, oma ew Wen you view acer otons do dcouat he att fine it kes Soren fe Smee erews Fr of a yous eve whet uracil ato be tame. sort you sold kr wast you'r etn mo. Not ony shoal you kai‘ our om sake (i Your ‘as eral) bu your inkvewer wa kao at ou untae ing for finance interviews: ‘You ould we te opportunity of ascvsiusve suing: Ge, tan Inkew a aserain i inane fr you Thee ae sons ich song gues you hae anor believing. Maes Pin 9 ‘tend reriingpreseons by fms. Informational inervee w Slum 2d ortho In uss coo sac years reas good Ways lke Tie Wall Set sara The Ecnamis, Buinesck an be give more indusiyspeie ews and aml. Umerican Boner vauurInstaonal meso, desert Der Diget sn The Del Deal ee sn if you propre propery bere comactiog te, te sicily ‘afore a god andsnse question and show pepempect. YOU tise aie youre ing i you dnt hance mesg or pone se some guste bot Fae pstons you shuld ask efi you + War ae he hus in he nds eal ihe? Are hey 100 bus every ‘nek or vey ther week Ite same forever i + lw do pole pe with th tye tin te inde? + What kin of money do pope ma inthe ins? arate ings Lukes or emanerialbunkes, vemee captlis, ‘ike sot ioe What wl they ie to change? ints change? How il he mars hangs? Them on es? + tse caer tk intend? Wha ila aed ts? What the cule ofan Uanking fi a5 compared 2 Fore 500, company? Corre star? + ata toposes fr Dyess ine? Aterswo ea Research individual firms ‘Ones youve answered guns aout he ndusy, ou snl Kein 9 dt be Enowedrahe or yurimeviws Gos ores ere ‘sly accepts ie Th Wal Set dro, Beek ed Forme. yuhave he eure (rap at cool ary) 0835 tls read toh resent anes of fade oblison Uke Imeem ig a0 Fis, ea he company poison wavslcom es wells SIRESAEE EA. wweus ke the J ideo he Tp 30 Baking Employers and The Vit Inside at asin col who have gone Bota the ering re sae ht you fr esearch nine race ears. Tet 8 "Josrsconlhaanintetment ning or france ah yam ines Schaal yourscool wil undabealy ave sch ub or ou ay at team ap nth ether sets nh ar okng ino fans caer Tes oF four se work quite wel fo fs esearch ces. Practice your interviews titen affine itviews ~ wheter they be fit quero enc sons, or zs. Woe hs ay bec aha qesions fn brains aeral, we an hel 00 wi hoe questions wt Fakcamswe), ts aso import a prepare for Huntin eves if ere te no rift or Wrong angus, We ca ar you ct he at pth tse questions, bur youl ee filin de lank. What's the ards Cac up wit cctv slo? Yau dnt wae abe cig ysl fnew inking abo! what Yu sould hae a or caps 30 Coal ave Bo (ne ofthe best ways 10 prpce ave SE GUEN we ‘inde nesses, oy aking tanta fine nna od ty yur sooo Mow MBA carer cores and any unergt acer esas, stdetsthe oppor perform mask ei, Bch tne poly vicoape Tes peice Ssins ae coped er by rofesal career counselors or ky sconyex dens. Tae mock Inevewees ae ae te videape of hel etgque fo wich st ome (apn an agi) Stents may one wat Kn teen thee toreceive fies coin, What mses re commonly nati by he vierape view? One ain sol cre cous sy tht eis hat "mos MBAS dt have ti story down. They cat elaborate on hy hy ce obsess schol and why hy wt o wok nthe indy,” Te bet ane ‘let dente hacking a eas hitary a ake aie boi no VAULTSyey a ine i a a i os, ee ass ‘Seg Ty bv bc Ty eee We potasonds ve tthe wt ng tre ju fr ent ay i ny ‘he imeriening midst” ARernt, the ine wil gp er fe Sesion, ascang Your Stengts apd weakness, 1's a god est take son hi eck camp” eaplisone mck inert "ny cats a ake 0 ‘ne trop thee nelneses Answering Wh Journ Weaken ata gd ies So when Idec a ters weaker oi mye they tree on al earmrk expense we slne o a ppropri tose 5 beter 09 something ke would’ al hem eases, barre ree csi whi slave oo gr and en hoe ‘hee tea a eet Sarees” Do eterionr tha nd ering hese canned anor ove one sain?" do arf ste nersewers tea she — nt ie! — My adic ose iso alvays pat ens ino tir Ov WOE” Prepare questions ‘aly, do foget hat nance elewes fe ask anaes wheter ‘hey have ay uss Dow et aught ang ike 2b ppc who ha one esearch and et on abo te oppor, Rea bot ‘heirs, read about he nes, and rene sre nae! gestions ‘Also renee ha, wen in dat, you ca allow he viewers a tout hares wih urine Tell ne oyu care path” nd Describe your pial dy--ey repos RMIRRSeAnn EA. wauerstnt 1Questions 1. Why do you want do lvesnentbankingavestment management! Thisisaqusstonsouatealwst ganda resve. Fisted oes, ou mt pz tht you knw wt he eee parent wich Jovareinervewing dos. Taos mary peopl he nus efor te ‘nee pea des fh jo Fueton toa ak ll the gnc dsrgin ofthe wok a person ht jo sake efor. in finance your li, bat you should illustrate scsnel that you ow he job fans ofthe pion for whic You ar iterviting. 0ue9 Tevforming these fonction, a hs! you ve develope the or sil ‘oie Le anal iy pod crucial an of couse, ' song wo eb ang wings prin he soo he). 2. What extty divestment bankers (or vestment manages, ee.) Don'tlangh. You'd Ye anise at aw mary peopl go terview with ty ke ding i hy acy perth jd Yoo are very ily o ei tovigrand You'd eter raw he sis of your nda for cxampe, Ut nvesieat tanker ise pla compan inthe ube rate marke or hat inestnat manages nage money onda and Du favorite finance texbank. You have ve mine, May we gant a stn ted? The point of tgs it two Fst fal the itv wae ttt your ably ean fomplnd faunal airs a ters. Sco hy wae es $uronshesp peerention sll. racic wit end even ith 3our 4 Wat me though your rename Asi, hgh thve aces and revios positon Hat ae most ne VAULTSof and arse you apr. stat your edcaon and eee ‘ows fw gil sequence. ‘Let me gine you 4 situation: I 6 Friday afteragen. Tomorrow ‘morning you have fo etch a Might Boson for Your be ind ‘marriage and you ate the wedding. You have informed your de {com wll im advance and they know that You wil be gone Jus Ben dar aba leave you ranking tem ‘ne ofthe i asso tring to ance oon, ene ae wih inet ni Jur ae vr rT 8 ir eh San cee wo oe Bou ve nt ah 6 Say you ae suppose to meet our geen for dinner but he MD ‘ts jo fsa Tate What do Jou do? Can you ge me am example of 2 sma siatln ou have faced before? ‘Wen answering a9 opended question the te, wy w mike them ‘nig and energie you elf your snl spinon. Again, ‘hs gutin Dege you toate tat you uerand te pou for Which youre ering an ht you ae awoeing rea, nd Teeofesod. Pepe empl and ou do, Dik of thn 2 ay ‘king? Fay? nigh? Aeuting? Sonstige aococe Why dd you diet do MUA? yea are an MBA sede ool oa Hes poston you ae robsly sng gt sgn. Ifyou came fom fiance ackgrond yo {Sk atet How yout You wold ad wo our kl By gia busines enon ané hos tht expecttion Mapas ou. 1308 el, Simply enter he quesion as hoes a you can AS a alc erly ppp rp tha you ar pein an MBA as ean or hanging ces RSE. wuuretnt 19. What pes of aetites dd you parse while ia eolege? Whi ay bl po a well alk about he op Ke, omen inerener "We lve tose ele who worked pains, wenn ale oF Thirclanes got At and dntacem teed ley Pry, bn ike pope indet wo will mses te ir bore. Theve Panay pope fe igh vad in he nerve proses” 10. are yo appying to hist be your eer an ind at wh ech fm ees on, wheter be talk about he instr and the fem spill. Foe some fis (smal ‘pected Hanks ie Lazar expe) is sane sper Aston Sone ser aa boi Ti, "You dene wae have Sorcane who hows wa he og ine. da i isa a {53m okng atl he blebs fms ps yo, You want se peopl wo ae vr oesed And even ahs i is hal ter he Sane, yor tevinee wl Be impresed md aie you can alk bon ow iso br in ifn ad hy at tert 0 1 Give me am example of projet tat you've done hat none Dear ante thing forthe queson tat deserts a work or hol proj, ing on hepa 12. you were the CEO of our hank, what thee ting Noll change? An resin usin, This question assumes, fist of al hat you've doe Tella your ieee wes a jou open 2 fice Shana ay be no snr = tri the fm aren han oes mt iy Be repr ond your answers Avid Being 10 ogve =“ fete 15. Wha yor favorite wed te? foal hone Yas rhe eer on yr favors Fis. 7 E89 VAULT i‘tayo ik isrun especialy wel he eBay. Jas be pepo backup dur ansir wth psi infomation 14. Tell me about the sok pe of «company in s0¥F prio ne of Make sre you'te convene wit tow your pevous snployers (or Competitors) ae ding bef You tere You's set gt this one. Draw on expences fo previous were pero, om vole sti, ana om any ther saan in web ou worked with tes omer common goa. Hig ourstengs as 2 eam meer empatiy, casa snd conse ae ond ‘ees oenphasie, thing you've read recently The Wal ‘With hese questions, ou terviews Wa fee Row ell ea 00a, ow reste jou arin ance, nd ow wel oun ei a recent bing fai isi, Rea the ura ez expel when ‘isch tothe nese tne We spss sartng Wi 45 ries 2 nd grafuly binging that down as you coe moe eet in your {nvomati ander 17. Deserbe a project you have worked on hat you enjoyed ‘Yer nate oppo co show tht you ae a harcwocing. egos, ‘move theft and Say tat at he end ofthe summer Yo find ste red Ge me see reasons why ths soul happen, and what Sou ‘This sa rst on he ata your lags Weakness” qusion, made td ave eves prepa SMM. waver 18.knows you very well both profesional sand sci 1 were ell thi pervon and ak hi to rb you, Sha would he ay? ‘erator eso fhe beth and wens gueon ‘Think tough his oe. Ft of al you shold inde hat yous iely Inmet Secon remember the pole fat Fane views a ‘roble-solvng,dedlnes, and productivity Again be prepared give 21. Con you sve mean example of You shoulshave an answer peared fr tis quesion Be mos an adit hntyou ate egercnend sacks. Nl, oer on Mow yo Boe ack ‘fo the Sete and what ou eared om th expen 22, You don't sam ihe you ae a very driven person, How wi you be she to bande ob banking? inenvew ser. Aer mesg wh mare hana Sonn pope na ay be very easy appear Wor ou ubih pecs Wi You ms roid = yu mut comin your ewiwer hat Yu ont war ot ey by dsplying god eee. Come wp wih good examples of ine when 28 Tellme aout an aecompishmeat tat you are prow ot Ths is your hance to sine. Remember: ere, aay, hardworking dependable 24, What was your favorite cours fn school? Your last favorite? ‘Wy? What were your padre we fein ne ej tem, Dat {en tthe rresor Was uressnabe case your rece my ‘wondrf oui nk your bn umes wel). Remember at your Se eh or gt oe 9 a VAULT i‘you an ecomis maj, of env one ses, you sho’ havea probln answering ht gueton, Even if you's nonce tj you shoul ave at lett oe clas erable example you can Drove Iyou've never Sone finan modeling, ase amp ete ieview or have sonore walk yu trough the paces, 26, Who nave you ae tat on bank? ‘Thisisacully a oodsign~yourievewer ma asthe impressions one wi people a at rm ‘ame tne? Jn same fiance poston, ess -ankng, mstsasking is a0 lingo atte Think though your background an pre fe his 28. What would you tke for mete ou? dimes your inteviewer with your krowledge an insight. However, et ak ata qs dt sem Uke Jou re nl asking er esate yu have An, api, when i db, ak oo hei poner exenenes ‘This is ebviusy «poor qusion to hose candies inevewing for ‘he inresingypopalr dpe ede find positon. Surprisingly. ‘any candids haven fe rw istingihes eg furs om abe ‘peo ds A ted find i a pate fvetmetprtneip which wes aggresive ateziesraalbe ner perf Sins o pops rst ed de funds are regu by law o ave less tan 100 nso, and kartisage and devas Sige hey eres by a1 es ae (0 aves he msm dae nesient ply 1 illo (Formate infomation, et he Hal Car Gud to Hoe Fads) RSE. wurst 17Decrease your T/NJ Ratio (Time to New Job) Use the Internet's most targeted job search tools fo e professionals. Vault Finance Job Board ‘rofessonae. Teast your search by sa of fanee, funtion ‘and experiance lve, an tnd the job eponings that you want No suing requiead VaultMatch Resume Database ‘Volt takoe match making to the nex oval: post your sume ‘and customize your satch by eso finance, experiance and ‘more. Well match job istiogs wth your intrest and eneria tnd eel them decty to your inbox, VAULTVALUATION TECHNIQUESHow Much is it Worth? Imagine youre? athe CEO ofa pail add company tat makes dg. You've aa Mh sucess sins 5 aa Want Sel he company oayore tse in tui it. How do you krow ow mh fell fe? Liew, oni the Bank of Areca sguaion Fleet For urs, you ald ded at he val company eel 1 shevale ois asses and hat ‘lac oF Anes = Det ty Ase =D +E FV by compar, ts ack oy nase is eb (Bonds and ea) Saying companys equty sane it etl ea gunship OF ‘he company =f] by pret ofa companys eqiy | m5 pre ‘he company's ents the amount wed the previous ont, “The vale of det is ayo cae he mate ale of des egal steak value of de (Us te db odes nd dhs hs el "mak ‘luc This nmin fee fare nee ys ir se oe the book value) Fguing ou the make vee of yf ki and ‘harriers aon ehniqus come nso Discounted cash ow (OCF) nasi Matis meng Compare anacions eto Generally, befre ne can undentid vaton, We ed to anderstandBasic Accounting Concepts coursing Coes Oat up vaunion. MBAS reseainee ‘ares sid defiiely be ool wih ee cones a) Hd ‘his overview fo be very basi). Users whe have ake accouing Basic overview of financial statements “There ae fur sc Facial tates hat rosie the nfraion 38 eed crate conpry alice Shes + Sanne of Cah Fas + Sate of Reine Eaingr “Ther four atoms pov in the aot pos (lo ete a 10K) pols by yue compas. In aon, company’s anual rep is anos vay scp hy mst he snc tater These noes provi aiona information about cachlite te of umes ‘The Balance Sheet pine in tne. es corpind of the pure Ast, Lib and ‘They ae the sores thatthe company ses operate ties and ‘eed Cat, Intent, a Egupment (Both apiece snng new investors, oF troeh opening emings. The Lines ‘Sch cine ht errs hve one company’s eseren, The Fi ‘yt arcs the compary ons es he es ower 9 eran Irate wor equity comprised fhe ein a vests have on he SORTS TTET, WAULT ESSE 20The mos portant equation emer i ht Asses (A}= Lites 1) + Sarco’ Egy SE) ‘The sete ofthe ale Shot is aed on hat ution. ‘This example uses the base fomat of Blac Shest Media Entertainment, Inc ose 3,309) ‘sce ns at 200 sous Pai 00 ‘ecumsHecable “20 ating maa eed Soe sua ate FS eae egy ET With eget the ot se ofthe alee shes, esse companies a0 ceca resources fom both esos ad ees they ms sing resin to operate he bases and promis pa he db Back ove specie ped of tine. Tis rms to pa is ado fined pyre Sehele aa st sed pe the operating psormaneof he compar ‘Comper sec ow veto to ci comer esses Howe, hey don promise o py imesrs bck a specified aout oe spied tod eine Ista, comps east or et os ives tht safe eorsinget Upon spins he emp or ven makes shout the Tevet of oping promnce, Since at eq oles ‘nvene tn rans, ery in aetna nan ae hy alecioe I company pes nll te pie ves i MMe “The proniseopy clement mes oa made hy eran 3 sbi ns, sat eccountnt woul sy, moe sei” tan eu) Moligs 5 spad ‘ak bere ssibtions io oy-hlers re made ‘sins. One side ineloes ait, the the ncdes ibis (80) and ‘artless equ and Asie = LAE, On th bly ie, dts oved Creo se reser ane ivesmens of ety ol snd areclassed 2 Lit, whe ou lvesments a acu fr the uty seen ofthe Haance She. ‘The Income Statement We ve dasa ton of he the ways in which s empany normaly oki te economic estes Heesary 0 operat iS Ys Rcoe {eband ssn res invests. Ach ayn whiha empay can bs ‘esouces steph sown operate, The cone Steers eset th reels of praton oF hasies oer a specified pero fie en et oe ge on oe ards compe of Revert, gests nd Reve: Revs i ous fee that rly aie oe te se sf gods or services ad i esrded when ism For example, when ‘rele of lle bes ates sl, esl wold be conde verte Expenses: Expres ae te costs era by abuses over a spied time, Forermpe, note oe manic corpus a pod, ‘tba the matt tnends taketh edict. Inada hat oe mpany spo peoples bt ake and sete pod. The company ‘mst py sles tects wha oper tinea The a tlliypesefepenses ata compuy ca ina rig te roma operations perineal. Lane ae cxperses nerd et ‘ns ir, forexampl, ald be oe ‘Assets and expen: Incarng expenses an agusing ase both iva he use of economic restr (hector eb) So ven pce comida set nd ‘wen iconsere an expense Aust aenpenies A pura considered ah a pois Fate economies the compar. whe expenses ely relat the cues ered. For example, marly saris palo empleo eserves ey teat provided fo the company wal be cmt expen. On fer ha the parca of = pce of mnulasng espn! woul Be {laste asa sto wl probly be wsed Yo marae a rode RMS. wauuretnit aaDet insane: The Revene 4 company cams, est is xpos over «| ru ies a pot, whe @ negative Net Income number iiiates ‘Sata company seed be (ales "nt 05) ‘Media Entertainment, Inc Income See orth yea ened Deventer 31,2008) evens Service illo 100.000 Expenses ‘Sabres and Wages (33100) ent Expense (03,000) utes Expense (e400) 52.000) Nectncome ‘Tosa he Income Sean meses the ses oF samy" opratons it pois iets a ced ih nomaston nee 9 eine he enerrse'spoaiiy até eeiwortines A company has cared et ce whe reves excel fel expe. A, ‘The Statement of Retained Earnings ota nat td py ek io te ato 3 ‘eld ang sou fae ning cleo Wis ‘nce ne Suc ced Fangs et items ‘el i unr ne oeose san cumple of task Seen of ted Ean: Media Entertainment, Ine Semen ofReine? Eaings oe the year ene Deer 31, 2008) Retain Faring January 1,208 ‘Sam000 Pe Net nome er sya 4000 50" Ln inden dodaed (e200 Retained Earnings Deemer 31,2005, or ‘As you an pray tly ooking at is example, the Shtenea of Reained Famings doesnt provide any new infomation oot lead reflect inate Emel strnete But doce. pve adios) Information about win anggenens og wih he company's aries. Miragret yb iveting the apy incre ee ies by rening pat tall fis earings, dtbutig scare income 0 sharcholdes, or stbuting canent and accumulsted. income 0 ‘tarlers vests can se his infemiont alan sieve sme Sra win say of egy gen er 2 a i ru cmp pp ‘etic mone ion tne py ‘The Statement of Cash Flows ‘conic anes aed goon face. Hone, ‘afc ac ge opera Tat he shan Sp yout snag sd btw no be eng cirt cee in hye sl wo i sone ay eT EMERG. wauereetiit as:Saement of Cash Flows pass «deta suey of a of he eas based ons tp of acti “ish fos from operating tits: Indes the sh eet of + Cah fas thm investing ates: Basel ash How ao-operaig ‘ste oration he noma cope of ness Thi rvs ea clasied oases inthe Balance Shs and iecloes the prc and ‘sl of gupen ar inverent lle a equ inthe fslnce Ss eles he payment of Media Entertainment, Inc ‘Saeent of Cath Fle or he yearend December 31,205) ts pre rm pain titan arsine 000 ree Asm Reco one) ee cetera suum us. Ne cs prvi y operating nen 20 ooh om provi rom vesting ein Pash Bg 90) Ssleof Lang Tos levee samt Secs rv iy vesting ete 16000 {oh os prose rom ann ties Pam Dae 200) eae of Cran Steck 0002 es prvi y Mang tits 200m) Nene ces) sh 300 oo at te ecg ene ‘es000 Coat a te ad othr aon 26 VAULTS‘As you cn te oing ate shove expe, te Suter of Ca frm opening sis + Dividends fom te Samet of Rend Earnings shown in be section Sethe fo ning ates *taesiees, Accu Payable, sda ase cad bly acount or Market Valuation ‘ow ls fook atte mor ehrigues of vaon. Wel bein with mark: auton, siti sips ay vloea publi soded fim. A ‘ob tad fi ioe tht spire on a sock exchange (ithe evo Stok Exchange o Nasi. Ths compay's sk canbe ooh sod sold tat onchange Mol comps a ie with ach a ‘he CocaColn Company, IBM, and Gea Motes, ce pb ies very ply waded compu Is egud © pulih at aml por. ‘expenses The 10K (AanvalFiancal) and 10Qs (Quarer Frail) for poly taded fie are arabe olinetroph te SEC Fase dts, wedgonline co ‘The vale of publy waded fim sey cleat Al you med todo ie find he compu’ sek price he eof ine ta) aly ‘he ramber of sures sana, and You hae he eau mate vale of tte company. (Tisical kon av market eplalzatieso sah op") ‘he mart peice ofa sgl sae of sok is Fay eae For ications ite Phe Wall Sec owed se rom aus gue ee, {aie on he nee thenanber sae outtninsc eoies Frome coro he mest ecent 6K of 10-Q the ery ror We sesh a ako! Fas, Hoover's Oslin and ninco SINE. wauersini a7‘ape ay Mak We (ei) = $60 4200 ‘he marke When ompany sell fora acour itis seg fr a ale lower than he market vals when sls ors pen sling for ‘ilo eter thn te nk ae. Whee scopy sel a prea fora scout depends on ee sup at demard ees you kare abot {nBown 10, ypc ifaaneone worse cgi few sel for Drie ton te mare aie often Thi sete a a cq ‘emu Ifthe aeqsion ea ose hee oF ire san auton, Dremu ar pte even higher. The prensa perl eid by the peeeion ofthese sing Fa he pase or merge (See cheer MEA) Discounted Cash Flow (DCF) ‘The DCFamiyssis hemos thorough nyt valuea company and son ear MBAS should expec 0 Be ested on tera to 6 & DCF in rae interview. Thee ae ways ale a company ing the DCF sopra + AdjoedProsn Vale (APY) ato + Weide Average Cos of Capi (WAC) mend on meds eq ston of company’s fee ash ows (FF) as ‘ella et preset vals (NPV) of tee FCF. Before we ok a ee ‘thd, wl exarie ew dein coneps et preset vl te Sp A Pts Ma (CAM Sh Mo a i Net Present Value What owe mean wher weak bout et pest vat? Wel expla his ‘epucnteonces wha simple example Les) Youd arenes 2a VAULTSunder wich you wee srt sesuv $20 fom a Hen oe yet #0 ‘yuu and weal ar have he ars tis. How moc sould you be ‘oligo? Mare than 20, 52, en tn 5207 simple eae, Fist dollar today canbe invested at 2 isk interes {3 (hin stings scot or US. goverment Bonds) can carn ‘erim. A dol foro worth es Rese ft mised on te ‘cco iin sins baying per of tre money. ‘none. A dicot ae cn Be ude the expected etn an 50, No The coun rat fren an th appr cs ofthe mony pertinent mar of the apport Dict rae ‘mete of ri Te eet pa coe. sete oleing formule Present Value eve, the ict ead” ithe ube of en in te te, The etd of aeng the cout at Is deren epenting on the nth of vation wed (Le, APV meta ve WACC mth. ALOE ‘he coum rte vrs, the conep of NPV oe reat a, Ite Les sy ses cs avs expe athe fon ESMGE © [Fo [Pen [rer. [rer rce, rer, [ren el?[s EMITS. wauer seit 28‘er pret valu (NPY) in eur of ua cash hows cael wh te dey Wad “Ue rel xwe 3S (Cp) & Meal cnet Sou use APV oF WACC (oe explaine eh Capital Asset Pricing Model (CAPM) Inowers fin the appropri dna it edo dicot te company’s omy, yous he Capal Ase! Png Molo (CAPW) Ths Il sed Yo sacle the expected ret on YOU ives, a0 ‘led oa expected mtu om ey. 1a lat model with ne independent arable, Beta, Beta epee elie vl fhe given investment nih spel fo he maielFor example if the Bea of a ‘nse the rte onthe nese (snel/bonpani) yey Sealy wih Ge mae es. Betas tan Ike DS, sas ‘investment es vale th he matt. So th Dow ons Ine Average os por be 20 pect th next ea vate sok Ce, ‘Bea 1) wuld be expected goo or don I perce Ae of ee than Ike, eas he inserter sre vale han the make A company elena (hin nore compar) wane Be expected fovea Reta reas than 1. Aconpany whos value oes vary mh tea lec ity, woul Be expe a have 3 Hts nde Mathematical, CAPMis eae a St Bqe0)= Dison et foranallagity fi = Rsktie ee (The Tesuy il ate othe peri ove whic te cath projcons ae being csdeed For eal, ie se ‘omsiering 1s pend then he rk rt he te or tel yeur US, Trey one) Excess mate (This theres anal ream of eck musket overa US. Trstuy Bon vera loa peed oie. Ts ‘sly asus tbe? pret forthe US. Markt) ‘Equity Beas gen varios sours Ie Walt Line nee es the "Yo Finance IF te Firm youre ling is at ely des, hen 08 ‘spall ded (Wher aelting CAPM you soul be crf se ‘he egay Beta” valued not ase Bet") I ou have ination or ‘Baz ssets cher than Beta egy, yo cn derive Bets egy sing the © o 8 = Oo + UO IO Hee: D= Maret ae oft (ey he Bok ae af em) B= aera uit (te ser of shares cutting x sharpie) (Als owe 5 make cap") y= eta deb (aay one an ase hs be eg 0) Corte es, (sul asied to be 35%) SMM. averse atFree cash flows 1p cape the chactrsics ofan llequty Sem we seclelte = cempanys eh Rows site Fir advo debe. The ees How FCP) ofall em yar (cn eel: CF, = Barings Beloe eres and Tass (1-1) + Depreciation & Amortization Capital Expenditure “CapEX") Ne ncease in working canal (e+ et ‘dereascin working pia) + Oter leant ath ows fran ll equity ian ‘sings Belo net and Tas for ERE) ean be oti fos the Iesome Sener seton ot mar aecouing cone). Corpor ts te, ame 35% Depreciation & Amoriation of firm can be obi fame Hrs Balance Stet (e setn on major acon one) from the Stiemet of Cish Favs, ‘terran ish Now fora let frm woud be ems he ose ‘al pocods (ling amajorpine real ene fr expe or ee oF {a oscar oars ort cre les of tse ms ane od inte fms anil stems or ira prods, the ee cach Maw wa for DCF analyte ape ‘uur fee eh Sow. Banker wil ily enon prose, is comin gies om icon an deta of eseabe Sstimates using tet own asumpsons While hore fina 32 VAULTSstats up in consort, DCE analyst san oly be Terminal year calculation “The tinal yar present he year (aly 10 yeas in he fre) wh ‘te ron ofthe company i cowsidoed Sabie 1 ther wend ‘The cts lows often 10 years a deter ty copy mags Sepen Then trina yer vale eos be cles sng tht Meyer 1D cath ns of conan heey eoing aa conta ‘aso 9" are pial ts high shes 10 yes oF woh whch onside! unto pow peros sted, “epee the aca ‘de ompny can fay eo freer gece than ae 10 yea) Theale ofthe ria year cs os tai, he valued year 10) isaen by _ Ft +8 or) “Tepes abe of ena yeas ows ais. be va aise i Adding it up. ding te cout vale ofthis 10 eur CFs ad the ein ear [CES (CFs afr yar 10 i perpetaly) gives alo the company tds the OCF ana RMS. aureaCalculating diecount rates flow (DCE) ays tee in ince itv the WACE (Weighed ‘Average Cost of Cap) and APV (Adjased Pret Vals) The key tree baween he wo ethos te way whic dou {alent Foe WAC, we cleus he dct te fr evened gy (Get) sing te capi ast ping model (CAPM for AP, we clea he scot efor an all-guy em (e) wace Fee WACC, he cout mis cael with he flowing fru © w) Oy, rams eH OT Oe fe) i = Mac ves of te att vals of iy i> = Dacor frat = Average onset on angst debt “2 = Dacount fr everage) uy (etl sng he CAPM) ‘ote: Th terme (EVD +B) aml (OY + represen the “ae ey ‘an brat (ao rfoed too the euet-deb and deb -ga rat CAPM: Hg) = Rsk-e rate th Desi bond or te oid fr whe te proectons a being considered at ete Laerged Bes[eel B= Unteverged Bets (Apa, 8 or pte company can be tid Vale Lie oli sources Uke Yt!) forms ° ‘Thue we se he ay ices between WACC and APY, With the AV caleuson, e ake he nvragad equ cout te (he our ae ‘Haassunes tr acopany has odel) abe dan aleverged (stared) ap aes * Wace Teveaped inane ©‘So aupote a cupny is 6. Obvious, the APY dos ne cope the rlyaeofacomspey that. Wiy? Deca inert pment tc edule, Heo, ft vale ofa copay ing AP we a a ‘he leo cet sortie mount money scam kes bY ‘nchaving tay nreston cee To compensa cis ior we ld ‘he company. Te etx sil (DTS) fr any year en by: DIS= (61D) D_ = Toa det free company yar y= Weg average meres ate ht cle cach ear = Corrie tae mie ‘hs pine te min was fore emergzee of he 80 (levered bj) shops inciting Koibery Kravis Raters & Co. KKRY ad famous takeover af RK Nabsco, wc ned he ese Barbarian: athe Gate. KKR browse money sed et by FUR Nadi at fie wel above he masa re Sic he compa hd no bore he tacos a as hier ha heh elle cash os, KKR was ‘bleach omgny’'s vo gh a anal resting ond five on tne Gncaph ie eof inet pens on At and econgsyiag wie. ‘he trey guesion now i What init mse sold te ass for hata be apis th ri aot wih he DTS. Hyoeasime ht fin, ne wl he UIE ate tat he x ld ky 3 ‘he ay to pay the debt, te he const te sould be the Serge ln Th tassel inl cleat fr the teri yor and acount oth presen yer APY with DTS =APV without DIS + DTS‘One snseaproxinsion fr DS that can be wd fr mos kof he DIS APV without BPS X Tax ate ()X Langtenm debt rate) I ‘The main sirens teeun the WACC an APV method is hatte WACC ules "trp debttoeguty ato ele the dzone owever ataet to guy nea sl 2 fo yearn the fate Hee method ot acdeieally comps," The APV to ‘sks bis coosderton an lnk at 98 allay” Sm Texte Levengood woth lange deta) = DXD-+F) However te dfn tect fam sing re tt ty rai every smal mat inven! baie wae the WACCtetbod ee ‘hough most nies sols each oth ths The dence beeen ‘et mets wil Dome clare ase po rah an eempe of how ‘weal he spore scour rae ‘Step 1: Assumptions ‘ete gh losing infomation forthe onary sou ate hing RINE. wauersinie 37Tax Rate) ‘ck Value De(D) Beck Value Eau (Esa) Mahe Vale Egy Ena) ets hiserica Leger Fond at () Loge de ate) Tonge growin i) engienn ik renin ‘Step 2: Cash flows 10.0% 120% 6.0% Roms Plugging in cud, we ge Year One = 701-038) 429-15 Year Too = 75 (1-038) 27-25 Year Thee = 7941-035) 627-25 Year Four = 84(1-035)+26-30. 19+ Dope EAPK- EB NWE one sis Ls = 358 09 = 416‘Step 3: Discount rates Remeber ahr ae wo ways to deine a counts, Lets gin Fist gt 8 from the BY 1.80 a ua-90), Fenn 130 1+ (1 -035X7.0) * 0) ret Bart) = 010+ (.18}0.08) = 00192 oF 19.2% ene, te pcre on uy fran alley fam would be 19.2 1 infor firm wih deo Hvala (veragtitorca Bea) (eevee Be) wace Las now lok athe WAC meting. For WAC, we ned ow what ‘tesaet lng-enn debeiocapal ofr scopy. Let sassane is projets Wit 40 pron at a pret eqy RIMS. wauer sine 38Firs we eed elie [ a-9@y ©. oo igs PPt e099 0] wes gg] = 168 ree nthe) FE = (010) (1.689008) = 02312 oF 2812% te: ler me cle or eet tro py o e.g the tage dese rn We ne hr forall ors toro at target ratio has hon matched it. Seo lg det aes 120 ‘pooner lng tr ts 40 pcan, wean cea WACC © 4, 0. 5 * Ore (1-146) = 06 «02312 + 04 1-035) « 0.2 0.1699 oF 17.0% ‘Stop 4: Terminal value We ssune tithe company oer ever. Bt we ony hare ou yar of eas ow Weed op vale ol he eas as ater Yer Four ‘The YearFour uh ow es and we expt pow 5 prenayee ‘he vl ofa eh ls fer Yea Fou (of the ed of Yar Fo an 40 VAULTon fd Ee eo qver. 21620400) gag (G192-085) seg Fer mace} ayrcr. SB. avrcr. S120400) gy O17 0.05) —_ apy ‘Ads nial ae = 30.76 Fors a a ie a sing thse cath Nowe, and ov sont re of 19.2 pre, we can alee eo ese los nove fC, FoR | Per, cry Wed Treg Oe” ey sas 338 386 sion Nev= Teany © Tromp * Troma * Te0iy NPV= 432425262274 1730 = 2641 (approximate)Fer 315 358 3 a6 ‘Add emia ate = 364 Phim [38 a 3H ae Ling te a fos hada eof 170 pee we can cata Fer, | Fer, | PCr, | Fete Neve r+ oo ‘ : Gen! Geo” Went Seal ear "(eo * ror ” aso 216 = M0 (approninstes) proms S10 (DTS), We we he flowing formuleasoumet | ssa | gato arses | 87 Te 01 S10 ‘The APV ané WACC methods ak igh dire esmpon abot te ‘aloof non x siel,esuting in light aus vautr: 43Comparable Transactions ned a lok tthe samp” eet tat Rave taken pase th consienngsgaiing Montzomery Secure, ely sed comparable rareions sche Bankers Truss aqui of As Bron or Bak of ‘Amer’ austin of Rakerson Seen. In sr was, Maes looked oasis finan Bn Saal nststions hat hess fie were acgie (IT Bonk Va, fr example) a ppd Wits th compare wansicions method you ae looking foe a Key ‘albed as mute of EBT, EBITDA, rene or ome othe pate “wha mules of hase paramezcrs the comparable cornpaaics were vie. As an xa, es sume tat ete ig Ite stp ale ‘ehiagocom hat isplamingto go publi. Leta sy tat sisal ‘by stse be company lak How mh she cmpny wor wugacion For eal, spp etara.com sh sso cm re obi The fei ofthe corps ar suri belo (ame al feoencn| 7 re " intrdaon] 2u@0 |e 17 | 0a) 3 Tanaian] 3000s |e | ©Bec the eeepc Lt se ny a ae slr Stren ri ero. Teva fr heap com ad {riastion 82love oogrs i le ere et fe sui eso ale te open ao enor pe) Multiple Analysis or Comparable Company Analysis it fn her inet eamehinfrain to temne tevin si ‘te comparable wanton med Ia thse cae, you cn vale mpans bate on mare aan mle, whiny and ing mae ‘eudly avalible nbemten, Fuamples of ese valaon mulls include rcetaming mies (no knoe st PIF rato, his meg, ‘aie compres companys ake epilation ts ao ‘he mot common sed mail) FITDA mate and hers One you ave dove is, yu an add dete ascertain entre ae. When ig these mei, you lok st which mutes are abd fr ber ampanes intent taser equity va let's ook st an example. Wt is he vale of company nthe trier ity with 100 lion noe ett pos nl sles {£180 lg, ETD of S70 millon, and esrings $0 eo es {allt Ware Semicon). Coopan inthe semicon ny ‘pai be valued with aes, EBITDA ocaming sie The manor sed for EBUTDA or eamings mig be Miguel fre 12 meas wails (previous 12 mt) th at Fal yen, 12 nah proce, o te ‘oe ical year pote. These Hues cn be oie am rescue ‘pats plated y varus eur depron wit ese aks or okeags hes RIMES. wauET sR as:Using ne vera maples fm te Common Stok Compr, we can 46 VAULTSsing the sales mutpes Wao’ ss of S180 millon 3.1 (cage sales lil) ~ 558 mon Ens Value) - $100 riion et Des) sis allan (Egy ale) Using the EBITDA mile: Wharon's ERITDA of $70 ailon x 8. (evenge EBITDA rlile)~ $567 millon (Enric Value)» S100 lion (Ne Ds) = 5457 min (Egy Vale) Using the pre to-arnings mulpe: Wharton's amines of 0 milion x 1a average pre-cast) = $505 lon guy Vs) ‘Sousing he multiple msn we an eine Ea al of Whar ‘Semicon a Detwecn S49 an $505 alo Thi ets at ding in det, ne arse at When's Freie Vale of ese S49 ane Sts Questions 1. What the diference Between the Income Sate a Sateen of Cash Flaws? ‘The Income Stone i 8 ard of Revenes and Expense the ‘Sent of ac Fows rears the cil that a come a oF le te company. The Stent of Cash Rows fat the following ‘storie Operting Cash Fle, lveing Cath ona, and nang Cash om ‘Sen, till go kag dost ave te cash Bom te ‘Sateen? “The main nk enaen th i semen is ht pois seat inthe Ince Suter get abo to sharhldrsequty a the Baus She as Reine Faring Als bone Blase Sheet i ard exelte Inert expese he income Stenen SIMI T. wauersine 47|. What the nk betwen the Base She nd the Sateen of Cath “The See of Cah Flows srs wih he belaning ca lcs, wth ames ron Blinc Set. Alo, ish om Opn ie ing he hagas in Bale het coun ath as Actus Paabe, Aco Receivable, .) The nt rereane ncsh fl oh rorya ne ck ca he nea ya's Bale See [8 proxy for cae low EBITDA is mings Before Ire, Tas, Deprcito, nd Amarin ‘Say you knew a company's set acome, How would you gure aut i “te ca ow"? ‘Sa with he sompary’s Net Icom. Then a ask Depesion and Amorizaton »Stbtact the company’s Capi Expendnes (clled ‘apf fr shor, thi show mh money he compan inves ach ear, ‘pln and equipment) The monde you get the companys ee cash Ne some + Depreciation and Amrization = Capital Expense ~ Increase (e+ decease in pet working epi = Free Cash Flow (FCP) 6, atk me though he marlin tems on 4 Cash Flow statement ‘The ans the Regining Cat lance, her Cash om Operations, then Cash fm Ivesing Actives, thn Cash fom Fancing Avie, tod ally Ending Cath Blase, sachanges rons maria) cpt expenditures) any ther change? Thnk abut defense anh a change. For enue gos ‘napa ie rss profsls, a he exe o which sles of ld inven? tes cst, Heme) rss magn Wert acre hea goss te 48 vAuLTesoth pay lowe tos, bt anh change, you wuld bey have vhf a ky coming in Here, if eventing ee remained he ne you would tly hve lest cat Going he Bans Sec 9 ‘ould nt oy hve ls sath ut lane ta ct yom wl ave loner sancaler'seqiy yap exgedine woe, dese te st, he eel of apa xen woud daca oe Shonen 9 Co Flos This woud Ince he level of eas o he tle het, bu dren the es of oper pln and eupnent 0 lanes ye ae On inom Stes, th depen expense Wu ever niki" ems 50 iy inte ere ©) Js be sue you undrand the inerplay tetweeh the Hee sin more at chunging ve set Ms vanifeaons on a te otk ‘eing «company ian ofthe mst popular wea ks you wil be she pr nme intervie th sehr eto at te dca and god ak MBA looking fr taking Bas ‘One hac ser this gusto i te dicot he compas pete cash Now sig a “skal discount tt" This poss intles Svea Spe Fs! you mus prota omy cash 0s fr 10 years aul, you must choos sh appopeat icount AM peg reper th preset vale of ale fue lows athe 1 yea "Yousen eet th Terminal Va noe of to wa (1 yo ke te camino i st yu ou pet) Ya 1D, and ai ey se ‘marks kip ke 20 tes earings, oe a our rial va; oF (@yyoutae te sear, ea 1a sume sae conta prow a pnw ae yer 105 the Teil Vou Fly oe out what ficou le” you would ew daca the comgy' ck owl ou leniewer you woud se the "Capital ASC Pring Mode” (or SMMRGcrma. wuerstiiit 48“CAPM, (sel, CAPM.) he rope scour ate us companys sk or" Bet") Fora mar avanced ser, css ‘You sould also mention oer metods of ving company ining looking t“eompuntles” th i how other slr compars Were ‘ald riceiy as # maple of eas, net name some oer 9.THe CEO of $510 mio company’ as she ean expect forthe company tay. ‘emit ona ren, bes the ame queon a No.8: How do 308 sale comet? ‘The Capital Ase rig Mods! sed cele expected sum oe he iennesmenc wh espe the mkt e, Beta, heres che issn (tebe) vay ental) wi bearers ‘ems Hee "he mae” fs well vrai index ih a the CAPM: Bhan 8 a8) er “= Riskstocrate=beTeasuy bond ae forthe pid or whi he Poets a engenders footy = Excess mahet ret BO" 2 Leserged Be ‘iso t for everge) eq (acted wing th CAPNO)stiches cused, her ae seve ie methods by which fone ean vale aconpry. And eh i youuse the ru eadenic DCF fats the tho main mekods (he WACC and AP tio) make it asumpions about test ux sil, wich cas ado deen 12, How do you cleat the terminal vale of company? “erin yer valu scaled by aking a sven yer in the fore a whe company is sabe (suly eur 1) suring prety Sable rah srt er ne 3 pepe oma ome pth he ale In tayee ba tre at Hows a coring vale ck 9 ‘he reeds metad sts ell ora FoFw(1 +e) TRC ie gs aed grow ate ne ithe dicount te. Rememter ‘ht you could lo east the emia value of copay by taking ‘ule of emia jer cath, and dacoing ht ack 1 Ie csi to ave aan ener Tiakeranive mtd ight be se omens bese es dependent on aud roth (2. 15. Why ate he PF mie for company i London ert than ‘aro the same company athe States” “The PE mails can be dian hen cvs even fal aber recoded Onrl mars latin in Ararcn mats tnd Be ihe ‘han thse ine UK 14 What are the diferent mull that cam be sed company? ‘The mot comonly wd eile i priceto-emings mule, or "PE tio” Other mulls tht re sed face ever, EBITDA, FBT, nd Sook value The levee mule depends en the nasty. Forex, Tere compare ate ofen veld with venue lls he explain SMES. awe stwhy compan wih fw protie can ve sich High art aps -As dics in th secon on ition ot ny sh you be sw of he ance mei eng sed ou shoul know ene per te mec ed epee fo cue cris PIE ato ean be eth prevas or oj 2 mont oF othe previous or pj Fa year. 15, How do you gr the dsount ate fran alkequlty fra? ‘ou se he Cpt Ast Png Mel, CAPM 16. Cam aly CAPM in Latin American markets? ‘CAPM was develope or se isthe US. marks, weve, ti een the best kn ol or clung cou ates. eave, whe CAPM is ‘tea goed eamewek for inking abot ad cling on fos outside ofthe U.S as fnew, ahs are bse 0 sna pres and Sion a prof? csc or maps mea 0 ae hi sony ther fam he DCP ‘pth. To ae the mulls med, you cat examine common ck Information of comple corres ine sae ds, to george Industry mails of picetovessings. You can then apy ha met Find te goo sopany’s abe, 1, Wt the ierenc ewe he APV and WAC? WAC inserts he fet of hil tthe ian ed 89 case the present wl of eich we, WACC ls pil called sing actual Gn snd numbers fm Mains sheets for compaies or ‘nausis, |APV asthe pos vale of the financing eet (moe commons th eb dt Be et rset alae asin al gu al {sla the adused preset vise. The APV approach pore sina leveraged yo19, How woul you vie company with no revenue? Fine yo wow rake reatnable asunptions aboot the company’ projet evens nd poeta eat ow) fo fare years The $00 ‘ould sce the Net Prt ee cath ome 28. What Bea? ace vlan 21. How do you univer a company’s Beta? Unleering = ompany's Bes mene clang the Ret under te sumption tat isan alegy n. Te formulas flows: 22, Name tre companies that ae underalued ‘hin they ae undead This is 8 vey” popular qenon for equity reearch ané potlio ‘manager! jo. Here ou have od your hamewerk. Sti he sok dlite and ae hr aig argu atode DC, min compare ‘reacdon ct. Then coos ste undervlsed (and vera) oes, de perl backup your ascent, ig nail a ery ‘ators, For example esa hat Coke recived some ba PR reset and is stock ‘ona Hanmer it the marke Hwee, tecamings of Coke ae ma ‘expected oder sipsieanly Bcase of he negative pb (eet ‘eer your srl, Th, Cole ating at tower RE lie line of resoing you might oer hon ssked ts qusion Che mar ‘heongh ad night the esoing. the beter Using some of te szcaigus detec cae elas gua eaigsof he WS! anabe blctn, wl ep 3 formulate eal-no xampe. SMES. vues saAls, keep nnd at tere are lt ght ane for queen ‘ke thie I everjone he are lieved tat rk as uneres, the pee woul go up and ewan be undead eyo! Wht he Intcwer looking foe iv your chin of ehght your sity 19 ensure tat coiciogly, Your inerest in he mses and Soar ac el the ens ht go into th thse majo components event, expences rt inom 24, Whle nds ar you terested a? What are the maipls that yas for thon indi? [As dcisid, die indies we dren mui Asoering the ftp ofthe gueson pick an try an any mar even at aes hagpening, Newt 900 ci terest n a ceri ty, oa eer ‘ow hw compan inh int ae commonly vlad. on ese he fing quo itt nw te mera esa) 25.110 high PE rato? ‘The anser oh or any gustion Ue is i "depends PIE aos ae rlaive meron and inorder b kao wher «PE rato is bigh ot Generally ihe ont fe wl ve higher PE ras eae hr illest gow more ply a he sok ce 26 Deserve ape company's apa structre ‘Acompay' capita ssi what t snk the rte of te api hat makes up te fo, ors det a equity. Capa care Includes pemanens, og ansing of acon ling lan em des, peter stock and canon sock, apd eid earings The "tenet of company's cpa race a expres hae ee te ‘oe in wih cobwars the capa sca ae pd Eck andthe der n wish hey ave cams on com ass hold eat Debt hs fie prong, ten prefered sock oer, hen comon sock bolder Anyhing ef ovr pu no he eine ari ca.EIT sao 300 | sto] aoso Cail gents | tea | woo | woo | nae Tesi aso | 200 | aso | 120 ering Cai i oe Tay Fa 1.500 Market Vue Equity Bet (ister) ®) 110 Longe ond ae) Bis Tonge dete) 10.0% ‘Longicon grow aie (a) 40% Longiem isk premium (2) 60% Ooweoch. vAuET ss‘Step 1: Figuring out free cash flows Free cashflow to an allequty im = EBIT (I~ t) + Deeeiaion ay » * T+0-90) » ce sana) (1800), ret Gand = 0.08 + (0794006 = 12, The expected eum on uty fr nly fin would 127 percent We wile his a he dsr rat for he APY seni, se VAULTVwace ‘ewe long tenn debi ae fr Os copay, Let sassuse is projets Wit 30 perc Gat aT pre eg iste oud teat B= efea-v@ ©, 079 Pisa -nanyo. on) = ops HE = 100.06) 0.08) + (0993)0.06) = 1395 9 18.0% Since ot on ems ett 10 perenne eb is 30 percent we an ra eset WACE, 6) + a0) wace= De) * Dan Wace 07 x 0.139 + 03 x (1-04) x 01 041s oF 1.59% Step 3: Figuring out # terminal value ning cs emia ate, ie we ste tthe cmpry opens freer: Sac we nl have for year fash Do we ae pat ae ‘mall the cash lows er Yr Four Gen tat he Yer Fresh i afer Year Four (sof the end of Year Four can be calculated with he ‘eon Valu mal fu soc eter APV oe ACC), SERIALS. vue seni 87apy FoF tyrer- Stee) wo) rvrer- H4009 hg (w127-005), mace rer. FEO wo) ryvcr= SHU O09) ggg Diss 005 Using the cash Bos, an our dicount a) of 127 pen. we Nev = Nr For, | FCF, | FOR | PCRs Gey Oey any One (+012 Gory” 0127)” (+a 220-+ 2267+ 21866 +3008 = 3789 vauurRe = REQWACE) = Rec wey. FO CR | FCA, hy em)" Gey” Ge” Gem nev= s 2a sao4.is Teas * Tomy” Tansy * Tease NPV= 222364 231,5352056637681 = 440.62 company’s value For WACC, wee doe with ou cacalton te val of th company is I together and figuring out the 8) 02 VAULT:iS = de intaion ins if = te intaion in Sheps Capital Market Equilibrium ‘he pipe of capil matt eguisan (CME) tes a te sou ‘se equlrum inthe cunency mat al over the welds that Be so sirge oppor ining bowen Wo cece, For example you coals | pound fr every ells, and 6 indian pees for ey ound, you sbould oy te able w hy a dell for every apes, Rss x £1 ~ Roto gis St Cone what wold happen if hi wa atthe ae So he loans ftcange rae was S221 lasead of SIE, bt the rpc ond Ropelpund lions remained he ne (40 Rad 160? You ul ke $100, cone to 4.0 pes ae thse pee ad eon ‘ackinto $1333. Youcoul stathore ané chum oat milions of éaiashis Sep Conver dali onupers S100 x RHO = 4000s si ‘Sep 2: Comer pecs pounds 4000 XL = E67 ‘Sep 3: Cone pounds alles £6567 x $2 = S133, RIMAGE. Auer sie 103‘These ee fas ~ ners as, elo, ate pipe of canal {Rc US dollars gerry conided he wrk noe table iy, i tht are considered tale athe Japanese yen and te ar, The elie Exchange Rate Effects on Earnings ‘ramble if US. company tht mamactars pods inte US sl hm fn Egle, squarely eins wl act edo cing dll Ifthe ala weakens, ne dla an ay fewer pd he ops canis will reas because When Be poms aed by sliag ie the lr sega. he eigs wl gon is mpora ot comings ee accom or Le ok at ant xa Example: Y Co Cla sel tthe UK, fr EI pr 2 ots ad gS bas Neesive pais | ft 1S Dal Posse ies |e sos AULT. 2007 vatEffect of Exchange Rates on Interest Rates and Inflation ‘A weak lar ans a the pees of ingore goods wise whe 708). When he pres of impor poder, hs cones Wher ‘isthe pres oimpared gods wil fl, wich wllone ation whic US. (ea) Inrst Rates Rise Sengthens US. (Rea Interest Rates Fall Weakens US. Infaton Rates Rie Weakens US. lation Rates Fall Seengthens only by ofl gover! cton a weakening of Be Cure sealed Tones in 1996 The Indonesian govermer had raged is caren. be Seagih As his ply Became ureeble the goverment devalued i “ns eeoony ino umolAstengheing of te cence fed ‘Sn be snare inthe Fling ha Sowa. wAuEr) 108Questions 1. What the sareney sik for 4 company Uke Miers? Miso ad Forte ete caren sk. Lats Mos fe iftinanet see pcm fr 00 RMB in Ch nb lee Morn wi be aig loin US an tn ad poly ‘stp OF couse an ty chang pees) ‘Now esi Fost cuneey Hs Lie Mo, Feed i vulnebie caer rks beau sls pros in fein cece. In aio, the ato gt is vurerble because raat cus overs, Lay ‘he compan hs mance apersons in Mex wher se a, ate sold inthe US The cos hose operations wb sesine othe {cass cheaper, Sl the for loser pies, a has gain © compere ess wil het up. cores Nicos ent ave manag Os ‘ve (ot of praction cts spent a Rend te as eager ection felis eves). Ford's cureney tk Is futher ompbesed because sre oft major corpo are i cote oui ‘he US. For example the pce of i mask ete Yenc he pes wich Geman ard Japenese copes sel ies. Ths Fw ha ‘eter caren ik tan Mirosat 2 When the carrenis In counties tke Tallnd,Indonesa, and ‘usin ell drasialy Ia 198, why were US. and Earopean-bsed Investment banks burt badly? sans were ht on ding loses Asn and Rani bark deter caeney of Bod inthe erect ht copped these ses sien ‘ual ron peroonng, in aber won, emewialy wares, (in fc, asi’ goveraentdetaled on ts goverment bos 0 Fes ‘sce jt by coping cures bat slo an ea)She US. dota weakens, soul iterest ates gone eal ‘eA ek lar means har the pies of ipod goods wit se wise mene in US. dla ie, fl ke moe dls to by he sme fo Hsing prices mpd gods cones Ngan, we 41S ition rates a what will happen the eat srg of ew sent ‘He interest rat a Bra increas relative tthe atest rte a ‘he US, nbat wil happen tothe exchange rate betwee the Brain real and the US olr™ ‘Theil erento ative heels ination rts inthe US. fal eatin to he tata rat Rass, ‘The dlr wil sengien elie 0h ube 7. What the ference between cureney devaluation and eutreey Devaaon osu ia a Hhed-nchargote sys sn busy Hed 4 anton ofpsvemeet poly, whl epeesion esis when coy lows is curency wo tove according to De nena eae) ssetaree mates, What ithe fect om US mation! companies the US dil stecagthens? US. motional tr caming dren when the dlr sortie ‘when he dole sengthers 9 What ate some of the main factors that gover frig exchange Chit: ests, nti, nepal mares guia SMES. wauersttiit 10710, rahe spot exchange eae of dors to pounds De strong or weak relative tothe pound? Srl stenaten guint pond in te coming ya hat one dl wl be SEs Oe etic] ri ot eee eee en ene eee Picts eon www.vault.com/finance roe VAULT AGH? 2007 vatOPTIONS AND DERIVATIVESThe Wild West of Finance some bd res th m9 when Bakers Tat, he eating acer ‘Gamble and Gison Gretings of wisiaforming her abot Bk 5 ‘sy wh Banker Trt bankers, which ad a reption fr Bing ip Tying aes, wer ant on ape aling dismissive comments about wher thir inswoud eal fo uring wt hy re ding OF the tonrapcy of Orings County, Caria, he net mens ‘ums ia US. her ea cae sini w he Bankes Tat eae, ‘range County oi sarge st ey had een ied shot ek of ‘he county's ead investent banker, Merl Lane, apd sy 157.1 1 208, Wenea Bute one of the os sucess ives of tins, spoke ot asst erates, sting“ view tem sine Bonk, oth or ‘he pres har ln he and he cone syste.” Wat ae hse erties alle eis? Quite sinp derivate re facil inramets tat devve ir vale ot of or have tir vale como pon the alae of rat ie ks, Se, aranay lees emptiness, Desvstes ae ofen used 10 alge nancial postions. Heélag Is «| ‘ancl satay designed fo rede ak by baaeing 4 poston te rks, Of, hedges werk ie suns: 2 sal postion pays oe ‘Enon he pace ofa cera scutes ceain pce. On eer ‘vos deriva auido Dee postin by king in pres Options, ‘Weil eg oe dissson with ok & options, the mos common eve. Options asthe wor agg, ie te betes te “option” by sel asec wot th obigaton od 0 Two of esl. fos of ogo ar cl pons a pat optionsCall eptions: cl opin gives th bolder he sigh to purchase an a fr apes Price ono lore a seciied epron cate (Teel is dein ‘efertoanAmerian opto Sanderd European cal options can only be ste the all optons ae Aevcin) The speed pee led the call epon on IBM sock hasan exe pce of S70. The eer of i open i eed to purcase IBN sek at $70 staying up 10 and ‘lang the exgtion de of ly I 1m Je the pie of BM sock {pep to $8, the elder can exercise he oto to buy ck am the opti sler fr $10. The ole ear te om aun an el 0 ‘Stk: far 89 an ke a ea pit of $0 per str irs te pe of Ske optog, which we wal den nr he ol ah le ‘unter of sures cbse hou oon. Note When callopin execs pc isexaly equal tothe cee ook ithe opin is callodana the money eal, When a call opin ba ‘Seite peta es than he cant ok prea an in tnovey” call When cll opto’ etc ies reer tn th ene Put options ig cemmen am of lon so nln. pl eta specifi exiatn dete (Agia, optons i Fuge canbe eed ea ‘onthe exption dt) For example 2 Fly put option on TBM wih 2m ‘erie pce oF $70 eles grap el BM nck t $7100 Soe tease al even mkt pee slower than 70 So Hf Te ice cop 030, the ole of th put option wou uy he sock a 4, Sel ior S70 eerie os ard make ez ps0 (ius ‘he pce of the op) On he eer hand he poe goes ver 70, te belderof ti pus opton wil et exact option an wl lhe aroun Be pai ba he opin, RMI. wauerstist anWriting Options Sounds prety each Hu How a tse pons etd An ho be so lls thks he pons ive der te igh by ne? ‘Welter san ere market calle he apo market thc lps tse ‘rrscions go Uraugh For every opin ole thre ms et option ‘el This ler fen refed tas thew of the opin, 0 ling Pu opsion cal wing pu Aone who oes fe undying se, "eh arom eividl or a til in can wit options, {av ea in no of 0p a ting poe ot ‘tocoe So else ate of M wl tee re tgs ig eps ope Beceem byt nck Fon be mt at 00 uring he des onan ove iano, ncings os F810 But emer st you ha 0 buy he opto egal. The seller of be onto, wo a it nara os oF $0, already rsvp of ‘option when You Bout he option. On the the and Sy the pe ad Syed below S70 and led a $60 on Jat 30. The seller wo ved ‘he amour be slé the open fr bat would ot make te erence eeu he ST stake ee an he $6 ane 30 ling price Why nt ecu asthe buer thecal option, you have ight a5 fant cane 6 If he ack prc of IBN stay aw ST, you a he ‘option bayer wl mt kre he option Ane I the writer ofthe cll spon ebay owns IM sock. be eset sling Jou hi pe hs BM stock oh gh al ges ‘tone 370. he hops timp poke he pion pie‘Summary options chart Baya Person lees sok wil go down ia Options Pricing Undertnding hw an pon wie makes money beige up tbe mt rc, xr pet voll of be sok i, he ie expat ‘cos at opto tls, we wl okt he eet on lotions he opsomio hay ecu) + Pree uederying secur: Ian options purtasd at hed eereoe ‘pton increases. Clearly if you hve the option to buy IBM sock at $100, he ve of go option lines wth any ret nak pe to $95 $10, fm $1092 10S, tm 10S w STH le ere (tie) pre: Cal options can be apts! varios eee res. For example, oc yan opton 0 ey sek in BM 10D, Volt’ of underage The option value ies i the soli ofthe rdehying Sack cass. Le’ compre si opons Mar Sy that he Google sock pce as Been Macaig om S70 Aeron from $90 to S110. Nove let's compare call options with an SSA. vAueAltough te average ce for both tacks in he ps ee man at ‘een S100, you mod vlc fc ot fo buy Googe sck mre cee shee se pate pnbly att wil ne wel above $100, (Pape {Geel woul eto S130, ae an WAL Ma SU, the previous ‘tee mont were replat) The reson is pol Ups nese the opis le sth te dovandelem bat otcan crs Raed Yo have the option to exe and ratte obigaion to Buy at $100, No staf te oponNoaly nrene the wake Of bth cl nt pon Time expiration The more ie he ol a xr he opin, ‘he more abl the option Thi makes coro rere, The Fer tay the cere dt, temo tn for mpedcabe hing fo pgen ‘morte be option berate wer hep vale fhe cnc ie wil (hs ices the option value) Like voli ie © ‘pion nese he val of bth pu and al opons ors ees fest ees ae he, he exercise pice has oer ese vale, Thilo reset vac of the al opt, Dividends: igh vient ae poly of he epy mens that out form of Sven This mans ht te expere apt pin fe ack ence, ae vied pay oats over hecll va. The folowing able summarizes the eaionshipsberween hese fits and the alc of opts: Sock pee neesen eee pe = Tey Trees Tie epiaton Taree Troe Taree Divi pve Dei ana averse 207 vnIn end pie of sn pin he any sci, teins by the ‘dsusedprovnsy,dare ae sndtd methods of ping opts, os tends sandr diay good petro how te make pres pions sexo and uertand he mln far en einer fo ee ‘Sele dl an apliadon, Oe psa eseatvesituments inlet ts nd gs Forwards -Atorward contarto an peren ut cals fo sure dvr of an se ‘revenue ftom the ensite plating Season depends etally an the bihly| Slsile pce of net. The tamer can ely der hi posting Decne rally his eke wealth is ed vp the cop The mle who ine ofthe teers He sujet profi uncraiy bese of he eves ot pio an reise terri hey eter int fora const ‘eg te ero dlver he wea a previny ape pn ce, ‘oles of wht he met pie tae ine No money neds age funds of the Une te apenas made A fr eat! i Snply a dered delivery ale of ne at wth an apd pon sale rice The contact i dogo pret each pay om Ture pice Pacts. These fade are gece amps th eat ‘ith mers quis of commode, ike Calo Acer Dail Futures “The fe conc ia of ard ht call fre deer ofan see ors cash va pce delivery roy dat fran ae pee SERIALS. Auer seit 118,ice Ths pei ell the tues pe, an to Be pd he te ntact mae, Ths tad who cna o parsing te comedy 20 the very die said wot a he pst Th tae Who tke te Fuss ifr fom other (eras in the fit ht hey are gui snd traded ona exchnge sh the pcs are scl at he en of ach ming ay (hat tees ders hi ype $d ose the endo each a) ues ae ately tela ad ‘scree For ctmple, fragrant omni he exchange allowable gades of a conor example, No.2 Rad wiser Wie! of No.of re she) The lace ae mene of livery of the comma i ‘pee sued by apprivedwarehouss, The ites of lve ae 0 Set Journ Fae ar ako alte an ober somos, ike gd Swaps. opal forms of saps Inte fren exchange Swaps ah eters! ale Say Son Microporous it sf develment te nda en replarbasis In suh a station, # wold make payment he es 0 Ina in mipes, hs id el exposed oreign exchange rate Matai "sks Teed hee xchange Sn would want ler en fctange evap ~ 4 podem extange of evency — with nae pry. Forel, San mip wart psy $1.0 mio or Re 20 line foreach of Be oe He Yas, For ance oer Sap "he Bie rg in Iain an many epee in US. dlr ni thas as sije the sae exenage rata sk. By agreng feta me hs Incest ate saps work sila. Conse a in (Company A) hat has toed bode (wc, rec, asec that hasten on) ‘oh tape of ID milion sa fed test oF 8 rent. Sue the tras, the tenis abgad to py a Sued leet te of S00,00 ane endo each er Ina sittin Ishi, ean emer tn ane VAULTrest ata sip th aot pay (Company 8), ce Copan’ pays Company th BOR at (Dosing or arable, sho term re ‘acct and Copy Bares op) Company Ae Bad ae. ssh ‘make is oun peed Fo spa Cmpny A Wald be Med xy $10 lion x LIOR each yuo Company B Hence Campy & as "apy ned ners at bt ting rate Geb. (The company Sap aes wit Conan) Bald he cuter. The eure ‘uns case psu want swap I Dating ate Jr Ted ‘Re debt ths locking in xed ie) The a elo ast esp sorte te Questions 1. When woud you write all option on Disny sock? Whes you exec he pe of Dine) sek to fl (oF say he sa) ec al option om 3 sock ir et ht he vale of eck al ines yon woul ewig owe el call oto on Disney sock so anime yu bed ise tock woul a ie (nie, be oft you woud make would be equal the open premium ou ied ‘when ou sl te option) -Aswap sanexctange of aur cash ows The mest popu fms ine fusion etcange soaps and ret rte swape They a vied 0 edge ‘ola as ste as euecy exc es oF test as. SIMI . wauer seni 1974. Say Tn put opin on erst stack wih am exes price of baw much my put worth and why? ‘Your pits worth abu ID, ean, yo can la shat of ak or S40, and By or 80 (te expat its wore he i, Be opie ssl sro vl, cee he ken onceaby dap mare) 4 When wou trae seking pra rm longterm posession of The tain he long poston commited to bying 2 commodity 008 pce wil nr Al ese belay equa: which mou be es valuable: 4 December pu tition on Anz sol oa Decetber pa eptnn on Bell Attn ‘The pt oplon an Hel Aa shld abl, Amazon.com i roe voll stock, andthe more olathe undersingst,the moe ‘alae the ation. 6. Allee being geal wich would be more valuable December cll sion for Bay or Sansry ell option for eBay? ‘The nur pon The Inter an opis expiaton dts he morale 1. Why dentate mer when ging the rie ects: ofthe enernpaae coe of net preset vs ese big aa fghrinere aes lower the ai fal ops 1. fe srk price on a pat otian i low the caren pris the sion holder athe mone in he money wt oa af he oaey? Bocas pat pion pvr he oe te rata a seca a erin ce, the at at he sie (or exes) pee Below th eure ie Sold mean ht the option her wld lose mor. Tel that Soft pn ng. kos bn a ot erat of ane VAULTeae acl pines the le the iho Bo a scarier sca bing pt png you te pono el he sks cenain ‘teen the exchange Forward contact ar more Rel Bes thy a pealy got, an on repel ay ats can ange SE carers, go tothe Vauit Finance Career Channel ee ee ee) Petr na SAU WUN Zee aia att} octhe VAULT SHSCompetition on the Street - and beyond — is heating up. With the finance job market tightening, you need to be your best. Standig by co review your reaure and give you Finance Resume Writing and Resume Reviews + For resume writing, start with an o-red "oad oe a ab crtque and rent witnn TWO BUSINESS DAYS. Finance Career Coaching {Trying to get into investment banking tanking to sverimen inking? tarnorinomatongs ts = WAULT www.vault.comifinanceMERGERS & ACQUISITIONSWhy Merge? ‘Wen to corps deisel to cpmbin feces in ltt mere, ‘he evs domins Tuscan Why ae comps fists ‘areas fom elcommuniaon 9 Snail servic naling neg? Besse ofthe ch efreda yep theory ele stare as hag a be tr hn tes of tht inspenn so ling te sino, ark stare fhe ote par oe el, nd Maa an ‘One porn enn ht company igh merge with anther compe i ‘o pins fald io anew Maske, whieh can eam i Be oem of rod or ena sin andvmees oth For skp he Sanoiy 2904 JPMorgan Chaser One rrr, PMangan nt ony toltsabeaty ston event nd commercial ring actin bt al ined a szong conse aking anh n Bak One his oastig 3 ‘Silly to compete inthe contier mate with prea power CCigoup. Poet the merger, Most of Bank One's 00 consumer ‘rancher were ase in he Saad the Mie while Marin ad swongol in New Yor and Texas. fer te combination, ch fi ad ecm 230 rashes 7a, wih ery ite oer ‘nctecss comgnies mre ct ew goparhlcmues. Cayser {nope Thus th ard combine ad fom Daim, Somtines mews are deo by the coveted bond recopion ofthe scqidon. For example, by aagung US Rob, Com ais US oto srorg band eoption inte med indy (That mere aso dean inorartardvar senha 3Cams ve calle Ceo ‘he computer reworing leader) cons an oosing post (ink econo cl). Why py fr ea ‘parneis o PR deprers or agar when yo ony ed on? Meee coma can by 00 abt ntl festa Sorasenee‘And sometines, compan merge Js oat Negrin a onslating Indi” some tin, mom noth baking and brokers, cuties elle as oqued inorder compet ase indy odes end hari ee ayers. Ss cv ape part. ine Moran Bask One cu, a tod JPMorgan ass $1.1 Tile, sling Ckipoups $12 bilion” Sina, Bank of Ares’, ‘coer 2003 sequstion of Feecbeson Fnac ade BEA the nit ere. Why Not Merge? While megs ae fn and ecg tak abut he poster iss Ime des ot achieve the segs nally tree? Tis 0 js iaied oe nvolve clash of conor cals ‘Soy do i mergers gp hough? One eso i at many merge a alo tere mnigenen os anl he excrete a eae Tey in pte tough te efor ofthe CEOs ofthe two companies Lis Now of Moti rd Lee Rayna of xan (Tis to tha this wil not work, i sino Te many merge, was ven ay he prone and cote of nine) Another por fe pushing merge ae he ge hank estat tbe ‘pepe eis thr at rst Rene hy are in tithe be Tnkew) beste. Goma Sch and Cod Suse Fit Baron ceed stout $0 mln fom eke advisory role in he AFATITCL ‘Ree Tink try dit have some iernfve to be ena when ‘aking so cles TV eye? ‘Types of buyere ‘There no main carpus of buyers compares strategie buyers td ‘nancial bayers. Sess ber re corpoons wo wan ashe nother onary fr sbategictsies esos. Fal bese Bers SERIALS. waver sine tasFrail teers are ypealy 180 (Leveaged Buyout) Funds oF ober ete uty fn. Nineines outa e, a seategi b Wlpay mor tan emia ae tp aston the company’s esting revenues and cash Now, see bayer oboe gh cy ate fin wrong ht hey wil Beale 0 sow the expan cash Doe fr by expanding in coleman? mks, edsone overlying costs oe. Av enh the sage ars ‘ure at he conpan’s pst action cash os wil be ihe an fre cently expt te When fy dsr hess higher ath Rows, they wl ther ato, Valuing @ company for strategic and finanei buyer ‘When 3oa prepilin anes fra state ne Your pes cash ws be deen (hat Mgr ta he cath os fr te fonipany a" sardslne” tin. Yost prepares po frm sil ‘eel tha piel attest even growth and tition of es fone beste the searing company willbe able dee ete tees fom the coe ‘Convers alunton nls foe hans bye cao tak io acount assumes tee the Hea pe such a tx Denes em eres yen on det ud to aoe the cmpey, and pera oe Jer ont here ae “bei” cot ings nd eee fancier fan fe onthe et company ance te agus i complete Stock Swaps vs. Cash Offers clan whenthy case how snot meg asc nap one ‘sock saps osu oe of when thee is astro ack mic Bsns npc wid 4 Nah make anitlnaton can sue companies Wah Tha more vhs In 1998 hon the egy eats were peaking, (poe of th merge sity in 988 was arom ooush tockess 38 percent dough cash scoring Foran maaan. 985, he ‘tis oly 7 een stock percent cash OF cone voll of ‘he sek mkt can mae tack spe tly We should uniersand why ‘heii sumptions valuing the companies a ate ayove whee ‘he mie fale Inrsingy, when art! sso, the eae ss Deigons, von tough vations ae hl, the envio Is piste an loots ke both companies made of wel ~the awed “pany i ven avery lg ae al, whe he gue apps 9 Inca rte mus pay tes wen ey ete ech The trae fens soda ce al ar Goer {ictus a nae alt segs Mahe), wh ae pai he ine of he sup. But when the sapped sock sod in he oper eS govcnme oan bs we so rt of eal Soc 7% o% cab om 3% Tender Offers Pckins wans to take over Aeme Inmet Corp, and tht Acme stock is ‘wigs 0 prs Say Picks ss an avertscmen toe public ‘tl haugh he newspaper or soins toast ileal ht enone ht he wl by Ace sack ar 40 Share (CB the SSA. vAuening mart pc) he can ge pret of he stock ousting ough hs meio, he wl ao hve pind convaling nner of sock ‘When tender ori is th sae pri ris low th orn pie “our etampl, SAD pera The pos oe atl end fer is dependent onthe il he oer il sco (Whe sae pie ‘han follwing though withthe tender offer, woakdn? Orbe sil the Sock pie d's, | Jo Doe aves, woul sly buy oat he rk na 9 T-Bone) tener fe If ech ter frre than 7S parent of he sok nd 20h surcolée of him For expe 900 were an Ac charade Inert in Tooele, re wer lag oll an You ,00 shares, he wou only buy 2 of your stock (66 shares) or S40 andthe other 3 {e820 (Te caseuene thi, of aue, a ou Weal ony ei 2 of yourshars) Al, bvsse es mada tendo f Paki does notresve oes by St perc ate pr he does have pure he ese i, ‘Wy wos anyone of 10 » di oy spay dh th mak Vahl a oy 40"4 ware) cay hy Ble ey cn So eine of eed pric comune ty aay wn» Bt ‘et naw hpi ns wl rye hy ee be tere (A ees gs cor pean, Be ‘Of couse the tage company can defend see Say Acme's management ies Glan Sars make acouer itn prevent ose keer and fers ante en aan even ge pec Sones hi leas oa Suction station (be famous UR Nabiaco ase ib an etample of 22 ‘scaling avon ao 9 tends Wer voted her)Mergers vs. Acquisitions changed. For example, a tof tetslon ase in the Bunkers “peDasache Sank deal when Deuce Bank of fea ied 2 Ranker Trex conifer he de a a mgr when 8 Jn can agunton When to campnin of ley eu ie dei ‘ecb fos, stereo a mege of gil amples of is ‘ype o ea ae the cent Sera are the Sprite meget ‘nthe te han fone company Bs et aot he deal oni ‘Scion of Ban One or Ors 's angio of Fels Dest hie sretinss lone dsnton of hn we omy tprize ‘meg ad aston, thr re lla und asunder cen he = wht np Daily depend on he meted ed forthe wansacton (eek swap 5 dSEsel boxe. Will That Be Cash or Stock? ‘Ths choie of whtherto make aah des ar stk nap dps largely 0 ‘srs. Foe example, if be tockldes ofthe conpany Feing acquired ‘eaten ins eda hs 2 compar hose took they swale tree, ty lp ora stack wap The vty of ie ‘kts mst io Re onsite mare hang ih» aller ‘ot romach ek sap and gt fora ath dl. Anat te ht ma ino py lho mo nse company wil tev ah inca ‘andor bait ech ah fw emer reo of pra val, we ow teas oy worth ta eh omer SORTS. VAULT SHER 127Accretive vs. Dilutive Mergers sequin company’s eas pr share wl ree ae he meget A Las tte «bok stan example. Say «she compan, ig Gm, wats to scquiea sgrowing competi, Usesboe. Abo spas a Big e's ‘sings ae S10 milan, ft has ln osttnding ses an hos as ergs of 810 pe share), nd at Ubon’ cars ae 32 ali, Wher equisen wl beastie or dkve depen on the aut ‘whic ses S00 share whch wil te fo ll of User's in caigs. The new earings per share ae S8 pe share. This deal | Busy dutch tems of haus eet, ad Big Gan aes © ies 100,000 row shares of stk ited of $0.00. The sombined company’ ll hve 12 millon i eamings an. lon ss, ‘seins oF 1051 per shar. This eae acer Ba G's earings 2 aig up te compe earings and shares (a we Dave doe in his cc ta an easier wy i ote thecal’ pce ening io, (ifs, The rie follows: When a company wih a ihe Pc 1 amino (call te company "Company "sa abe #8 PE ao Hf Company 1 acquir Company 2 PRP, DilsiveQuestions 1. Deserbe «recent M&A transaction that you've read about question. Read the pages or search he Ire and havea Tease “Tneconboroehy pepe You spl belt cover aowr apes ‘ofthe rections. You sul nn what he arches of he taneaein Forex you coud ik abot te Sant serge amen 2004, Thatch sod ek nein ws wor an ees $1 bl, ‘Although no cl was advrsed a amet of eg and he ease ‘il ein bythe sare of th el lea that Kata a an Segui Stu sharldes were ord the ace ewan $80 in eho al fone sare of Ss Holins te new pret compa, when ws ‘ald at 80. Kiar src escved ne sae of Sus Holing 510122. Topas: he lage an ores sbed Seu, Krad ‘he deal ps Is anos $3 bln Ia excess cash. A he Hine of te enous, Set and Kor sey expec sig nine Sas F800 mln year, ae Beer comple 2, What were the reasons behind an M&A tanection you've ead boat? Dos that ramacton make ene? ‘erp nore importa! than unentanighe mechanes of etn ndcstintng the fcr that ve MEA aii. Te Sasa deal, Tor example, bough pthread stupaing compas in hopes ‘ha, combi, yl aie tte cape wherein eter sche Wal Man, Tet ond Home Depo, ‘The Serna da eet he hit est ele inthe ou, eid WalMart aed Home Depot Kat ws song is eating end Foe secesones a ently aed name tan sich as Thala Sh Jt Sou Joe Boxer and Mala Stevan vera. Seas, enti, Was ‘ow for i apanees and tol speciclly for is Keanore and ‘Gattnen ands The combined fin hopes o Bend bao he Has son ts, oferng lity aplinces ada epttion fr nd Servic) 0 Kia shops, at doco clog ad low pies 0 Seas SOARS. VAULT SHR 129conbied fim w fomidably tare agains Wal Mar, Home Dept and Asin, sour meniewer will eget you 1 deus to he Geaca Set of ais npet on ean, wel 8 stati dies 5. Your ea i pitty ld human resources software company ‘Who would you expe to pay more forthe company: Oral Software (a competent Kohlberg Kravis Raber (am LO fame)? Oracle. A sete buyer like Once would ypc pay owe han ese ad eefore hile eth ows fom the purchase tan woud KER, Forecmpe, Once would bebe teat pyr ad ative sat cmb he conpny’s RAD cpt with Oral, ex lawer es 08 4 Are mast erg soc smaps orcsh transactions and why? 1 seaeg mares most megs te ck sop, aes Bec te tok se of companies ars ih a res of ke mee Also fener the PE res A dive mage lappers wien a ompacy wih ove IE rae crest company wi ghee PE ato, 6. Whats a ceive merger? ‘The tps oF mere in which he againg crpay' seine er sare incre. Wh ear 0 PIE eto, this app when compa ih Npber PI rat acquires company with wer PI rab. The aca ontany’ scams pe share shud is oiowing the mere rato 38 times earnings, wheres Company BPE ra 30 times ing. Afler Company A acquires Company By will Company A's ‘rnin: pr share real ray the same? Company As cain per sae wil ie, case of he long me: When a higher PE company Bus a lower PE company, the equ’ 130. VAULTaming per wil i, Te dal io eae, appa ‘.Can you name wo companies that you hak shoud merge? ening ees Hemcen wo compsics eal pt of corey srering thr question You aeons to ener hat he mers wil “Meosf stould merge, bu the combined company wll hive a uit sero (Moree the peopl ring the fw compancs do ke ech ‘eran would not wat merge) 1 copay A was to aie cepa B, bit compry Bae, ‘erat er ep ke he MS a ny ‘thew gre 8 poccat! boc arn canon StagnatTnsnehngofe pnw: ee ees ‘Sites tos te SEC governing wih ai 10, Wiat a leveraged buyout? How fit tiferen than a merzer? A leverged tout oes when group. ty fefarcng company wh er bet ices he vlan of he omgay BOs are pally complished by either fans) oups teh as KKR oF company ‘tunazuneat whereas MARA densa ed y snp i th ay 1 Company A bays Company B what wil the Rance Sheet f the ‘eimined company lok ike? Ini aezounting, sly a nh ne item the Rane Stet. RMI. wauerstiist 131Wondering what it's like to work at a specific employer? 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Go to www.vault.comWon ee GUESSTI MATESStress Tests fssinats cap unerve the most level, well propre nee ‘oie ts ie he ac fa dl ial your stan a ep ‘hat ie pany hele purpose. lvesineat takers and cher hance Drofesiomls need to be abi to work well der pestis, 50 many Iarvavorsbueve Bat Uyosleg 2 teureser of gusta at andi 6 a god way to test an applica’ beers, Be tse ‘lestons sete aot purpose. 00 nervewers wan You showcase Sour sity t arays 8 sation, end fom eonelsoes abo ei Staton. soot mcs impo Ct You come up wih cone Se et tat you lay song asi ay Acing Guesstimates come yp wth gue, ly te se of keto the uber of abject {nanstca Albough gcsiates are mor oaranly ger ine for cesuing postions, they do pop w in inane interviews at wl ‘Pring oestinats isa good way tobe pep for es questions In teaoceierews, a5 ey force cans Yo idk loa! ~ pe sey Sohateroer want se: The mot nponant hing oemer abe Drees, gaerimat,oeven simple math qeson tae Spd The best proach oa guessinate questo i hk of finn. You ein by inking tray ten bwly raring Gown the sitio onan te mse. Les ok at thsapyoach in coon Le’ go bok ‘sed deren sth li fe pn pong bl and he volume oF For any guessinat or tans queen, you will ed to ended ‘wheter Your inteviewer wil be roving any decton oF whee You Wil hve to mae wsurptons”Theetor, bein the slo of {S.Whas the volume ofa igi png pang all™ Ite een dos,2a know o eis pov sy ane th you mus sue te ‘pauses, Forts xp l'une your tervewer wa yOu ‘Hie te enumpion. Your tr might go someting tee erage pope inte sac ecu ya erie, 0 ht the (ay, 504747 at aout 40 sen extuing tegen, sie thre af thes gales 14 laze, tes alles (0 ote ower deck alone on he pe ek) na he ace ei) te alles is sicpeson eqivalem, by the lawsuves i 8 topeoe ised thesis area Speen equa o9 he owe ek 1 20petson equivalent onthe upper deck. That's an ado! 18, 28, ne 20 perstsolues er the remaining pce. We won't ind he oct sine soneooe as 10 ly te Pla. So there ae cbt 600 poscn ‘euiaens abe In addon oe hina vole, wehae take in scowl te ago cent pce th ly Bld, the onrea langage compartment nd ‘he space over the peng ead, Leathe plane ole four spice is 240 pesos in volome (Obes hs stomption ‘he most inyoran tein this gue. Remeber tht is ao Import ht i astmpon be core, ja tht ou knoe sano ‘Thee, twa we have 3.00 (r 600 + 2.40) personales ie solu sale. 3,00 20,756 cb nshes mena we ave 82,208 000 abl ses sace vale (ne ane 0 60 milo). A see ce Inches grb 2747 cold Hold sot 0 mln all Hower, phere {oro prety tops Elise 8 cna oetage~apheres oe ‘Youmighthe wondering ow you wold eset al es nur your east Noone execs suo ts ama lest 30a shold wn ov hese numbers 8 yu Eevelp them. Thea oo can othe rah 20 Duper, in Font of te inendewer bch wil inher demon Jour eal sites, ERNST. vauerettiit 138:‘ou chose pubes, 0 poke rou ruts a ae eyo you rilan pope inthe sited Sues, o irvcwer wil ich you esas Nee Therap Don't argo ath “owas ton pp iat guesses a car presi example, his sp ivaied rein or ema oF Pe OME falls Bocausesperes do not puck prety togets. you's tying fare oto many locke there ate New Yor Ci, emer 9 eliminate Wks covered by Cental Pak (and ote ps) If Yo tstnate the amr of eas Amr, make sre yoo Sea Wha Brainteasers Inrsews. Sone of hse ke he eed. "Why ste ane oun” futon whos repel epintd a Mico, ve no deft anor ‘thers fave snomery, but even wth, Ae moe = problem and ase cet elvan gestions Remember, binare are very mics staph o sages 3 sepysepmetodalogy. Howes the col of 5 es. Fest, tate noes a ou nariewer ater yu 8 baie especialy Hs hay on mth Scan, tik lost So your ineriene en ese Sour ‘inc! pes. This may sem utr i the camper he nd of isch wil sow you Ho tool rack hese quesions ane ow you shuld voce your anise Ip adtton tothe rile pe ‘rinarr, fiance teres wil fen ho ot ale mthemain austen sige Se How gk haking Jou ae. The rath questions tre os fen gen to aaj applica, The best way 0 prepa oes {usr (te an fn ou bic of ese Guest moet common, vic eve Rapp done for yo) simply now tat you mah ge fe of hn Tawa, youd get one, you wo be que spied oF nae VAULTSQuestions 1, How many gallows of whitehouse pant ae sold inthe US. every year? ‘THE “START BIG" APPROACH: Ifyou ne sre where bein, sta ith he tase aampion tate re 270 mul poole im be US- (OF 2 millon tases, pending om he question) Ifthe a 270 milion people nts United Se, peraps al of the ne us (o 1S Ilo pope. The average fam Size i aba he pop 50 there tent hat rss hes an houses or ther prpones besides ouses x pita ever 10 yeas cn erage oie how we fly ke ‘ha um sy thwart) hen here ate 5 lon Hees paid ‘ery yee Atsuning atone lon of pai cover 10 square eto wa, ‘ed hat therapeu hat 2.00 square ft of wall coe, then ech house eds 20 gallons pain. So 100 milion gals of ptt ae pe ‘yer (lon hes 20 gallons) (Noe: fou wan be ny, pou an {ak your inteviewer wiht you shal ince ner walls 5 Well) 80, {ee sol cach sear (Don org tat ast st) “THE. “START SMALL” APPROACH: Take 2 tow of 27,00 (hoe "10.00 ofthe ppaltin- fou use the se assptin th al he town nein oes ino of es, then tear 4300 fone, pls seether 0 prcens hich makes S00 fase. Pane vey 1D sea fer of wl and each ln fp covers 10 square en each ose Souris tum, Perpe 800 of he re whe, Mali y 10000304 Your eesewer may thn ask yuo you wold tan tual umber 02 she Ute your cet = stating major pi proses oul be far ping io eal to HUD' ies arm sold Bl, © e80 ance sal spl of he ein eakaton na few epee ‘ons s possible SORTS. VAULT SHE 1872. Whats he sz fhe marke fr sprabe saps in Cina Here's god exape ofa marks siing How may pope tive in Chis? ‘bien. Because he population of Chin is youn, Tl 60 millon of "hos iain mak eof eidtsarng ae, Ha are women, thee tee about300 alin Chinese worn of eldsaring age Now the ergs fami sei Cin ire, eight |S hen omateras per fal. Lev'ssap Worlds of Chose Worcs hve cen Tha eas hehe ae sos milion chien in Cin. How any of toe tne ue the age of 07 ABOU a eth, 30 millon So het ae a eas milion posible consumer of aprale apes lo people 0% chidbesring pe = 60,00 people 40,0000 pope 12a women = 304,000 0 worn a eg 300.000000 women x 2 fave ehiteer = 209000000 women with 20,009400 women x15 hire cach = 100,000,900 chien 300,009.000 cen x0 under ae 2~30 ilies Take your fue af 30min ole in Amis Host many pple at pra? Les 200 mon Now su he average pment person {a pza tice a ont and eo ses a ie. That’ fur tees 3 moth te everage ie of pnza speak ines the ase and 10 ‘ul e120 que ines, Sine oe sure ot xin [44 ghar ches, [es sue teach psn wh ea pia et one ref pe Pat Since nee 200 ila Ameen, 20 milo square et of az se comsumesin de US each ont 30 milton pope in Amesca 210 milion pies Average se of pina i ab chr a the ase al 10 ces fog = 30, Square ines hl chal the bs) yee VAULTverge Anas us for ies of pia aon out lets 0 que ices = 120 square inches (ne Sque fot logs ce) me an sue oper pose gare fonts 20aiion pape = 20 milion quar fe a month 4. How wos you etna the weigh the Chyler baling ‘This a proses guess eteviner wan oka if you kw Tuilking hele ep). This wl allow you to determin the ‘lune of nui. Dost taper atthe op (Mes) Tae, you mee 9 simate the eompstion of tbe Cheske buling Is mes ste Remember the exe stp om wheter our cosine bulne tally empty rw ce ete, poe, ee? (I you'r nelig te ons, you mit hve tad 20 pet ost the bikin’ cit) 5. Why ave manhole covers round? “The clas anes, sah 98 va Micron he origin ren ‘tough i gen nas ee aad or jer, ervewers sl emouer oud whe sling this beanesset ny ace manne covers rou? Coal three 3 teal esa? Why are mal cover ago? I woul make hdr it wha ever ‘You'd hve to inte act te nih ay. So many reo cover a round because by ont nt to era, Tee no comes 1 ‘wth Alm ound mass cone wor lit a ole Bere was ‘ad he wrong Wey 4s, ‘Looking at his it ses cores ara probe. You atu youn round manhole cover And beat IC rund, can be ae esl) ‘rniportd. One person ao 6 Ifyou ook a lock ad the ine 3:5, ha the ange between ‘Teaser it eo The outa mem, on ll. The EMMIS. vauerettiit 130utero yi (8 360 dees, Soe anes seven an half egress bee 7. You nave frelon jag and three pallon jo Yo ‘acl four gallons of wales How wil yom do? ‘You shoul inthis banca ity single fyou wee w ink out ou, You igh bea by earning ew wich combo of ve and thc can came wp efor For example: 3-3) (8-3) = 4 Ti pal os at acl ad th ig ae, bt i a et way ee banking abt gueson Hews the solion ihe gallon jor ih ter and par in he five gallon Repeat Because youn only put oor lb ito te feglo one al wil be et ove inte reel jug imp out he velo gan pour in he oe gallon. (Nether, ca be epeened 373-5 °3 66) obtain 12 all Allo them are etic xcept oe, whieh ler ihe than the rest. The 0 bal ether low whi the rest ar i Sl whe tees re Nall. You have ele, a8 re permite tree weghings Can you Mentify the odd bal, ad ‘Thins pot complex question, a there are actualy tiple shsions Fis we'll amine wt haut poe a incre ekg fo sn then welds oe slo Sr withthe simples of oer. The umber f balls you with ais cack ether tbe eu. Yeah, t's eins, a Wy? Besse if You Wig, sah tee tlle asia Fe, you ste oot eccng any Infrae n'a problem Ie ts, you are eying este a6 mach ‘nfrmaioeopouble wits eb wing. Probe ith hy bleh ft eihing shoo aloe al (cca sic Tht weighing ives all fhe al ba wt yp of Informatio drs tev you? I acta gives ou 9 new information "otaleny kro thaton the ie wil be evi han he the aby eihing sc apis, you wil singly eosin knowlege Sl, 00 ‘ot inflation abr sry all spss eli one pia one obvious nota gpo ea Th he et et weighing ar eas ou a0 VAULT iSeca you hak doug his probe long mou, you wil elie ow psoas the infomation gained fom a weighing You ned 9 traf imal every pee of infomation you hve gabe fm a ‘iin i he pave Say yo wish Fr asin Fo and the sale laces. Lock you! Now you Kaow tht the oo ball oe ofthe saucihed fur But don penne impale 0 singly wok wih hoe als nis weighing ove alo ead the lg alone sal ‘aly remeberto use yourcnaiy: Mest pple who wo eau i robe conser oly weighing a rner of tll gant ach oe, nd hen king mtr aa! weighing them, Ts woe da. Tete ae sumer of ter per of moves you sn make ~ you cn oat he al ‘fom ane sale athe, you san ech bls te. Lo lok oslo Forssk, we wilted oft clea Sie Aa te hea Sie 8 ‘tp 1: Woh fone aie gun Sour, {teal oe it woking ene we naw tho als one of ioe ot weg but we don know whether tis ay oli How ca we tin is infancy? We cn el tr apie he al we ow tobe noma So ‘2p 2 lor Case A: Pe oft uch alan he ide pt 1 ton tis second weighing. the cle ances gi, we know at ‘he ial seg all ih one ‘2p 3a lor Cate AD Weigh te fia unsipded al eo) fea oe ofthe norm hall Wi the weighing, we deen eter theo ll sty ah 1. tro second weihing, te le pa Side A, we enw tat ‘he ol heavy i pst Side B, we Ar he ed alls igh bes pres a he asnpon dare al ie.) esto know turbo al oe of fe pop of tee an Se A RMI. wauersetist 1a‘Step 3 for Case A): Weigh on ofthe bulls kom he woup of ee spinster one he eae balnsy, he al rm he poof ee ‘far was unwighd ith bal ands sy ft sae is, we ah ident he al ease We owt air han te ter (he sealed ped Side B, we mld ee sane gal proses, ing ‘te bsonedge ta the od al at) (Cae B: fhe al dm bane on he it ween teats do net aase onthe st iain, We Kw hat he a al i ane of hip al ht was weg. We sp kth the 209 of a week hal a onal nd that one th ses, e's ay Sie A, i evertha eer (tough we now wheter he tal rhe orl. ‘8p 2 (for Case) Take tee al om the uowsgheé group and vse ‘hem treet alo ie Ate sty te Take ee al fom Side Aan ase them ole tes balls on Side B (ic te emote he 1 tte sae aes, we kn uo ofthe ls emoved om light We can prose wih he hd weighing os dese in sep 36 1 fee seae ist teeter sis a Sie snow he Heary Se, we know tt oe of he re balls moved frm Side A Sie 5 ste a al, and dats Hey. We paced th he Bd sihing a erie inp 39 in Cae A ‘on the sale that was na sited in our second weighing is he od ‘he uroved bl on Sid B tough we dont ow whieh ‘Step 3 for Cae): Weigh hl fo Se A gant neal al If she sl laces, teal om Sle Bs theo oe lp ‘As you cans fom this soon, oe of the Keys 0 his problem i ndersuning tt norton cone ged abouts evenly 26 being weighed Foresanps we kaw tht oe of heals 0 ros naz VAULT‘tut blag weigh eo all we ow hat te ued all re Sawaal groups of doce (aly evel down oe all, ‘a ond srtegy ant an imately sce one 9. Yow refed wth wo dors. One dor lead to our ober ha’ ‘he one you want) andthe ober ads othe et tarot each oor fe gear, One gun alvay tells the trath. The other nays es. Y ca ask one questo fo dei whieh door the correct ont. What wil, pena? ‘The way to ogiely ack ts qsson i a how you cn const Sesion that provider he ame answer either sre steer oa 0 Ser who soak ‘There ate to simple aves Ask gud If wer to askyou iti door tose ge the caret om) af 0 Hs od). Now ake te ine {nse no But you ak in: 1 were ak you iis door wee te ‘ull answer, and soy ys Amstel ask wun" L were ask the tr gurd which come what woud e357" Hae the eu ir woul you the woos ny esate sal eporing what ‘lar would), whi eying ur wool as we yoo wong ay (tecan eis ing abot what he nth pare wo) representa by 1, a ling the rh a represesd hy. The Rist ‘Staton rove ou with a conse ular ea (141) = ile (INI) = 1. The scan sian provides ou ith orsisey ibe anomer because (1) = and) = ‘Thisk is trough clay, every acne wl ve 9 podie a sample coin a ni, an you mat igh al Hse coi togeter How eat 900 ‘orion hich coins cae re which ahi? The best a9 tachi | wil rake oe sin, acne 2 will make oo coi and 0a SMES. wauersttiit 1athe wl orca woh I you'e au gran stor oe expe, yout the four members of U2 (Beno the Bas, Larey and Adam) need to tiaras marrow bridge a pay aconcer Since is deh Masih IS required ores but the bandas ol oe Masih, ad ons to people can ross the ridge a time (THs wot ofcourse, tha wat scons, Larry takes ro mines, the Rage takes five minutes, a Stowpoke Bano takes 10 inte. A yi eon oly go 36 fas the Slowest member They have 17 mats to get crn Hew shexldtey aie “The key in atacking tis ieston founders ht Hono ante le fre mjr lables and mast be govped ote. In ther words. if 00 tent em ars separately you'd eal be ang 15 ite. Te wo fo, Wt doce is ea? Ti ooo a he Ege rst go sense peter But hy ca ot be te nt purr ene of hm wl at opr te ‘asi nh Instead ou sed Lary ané Adm over st aking two ines. Adan ones tek, aking acter mint fr 9 lf Ute mites Bono sed comes hack, aig afro mies, ora O13. Aa a Lay 12. ithe dial oun of 316 and 76? tempt sess you eto ee ho ick You mind works, Ti question sso Ras praca hnking spiatns Sick fen ae dea at pce Tepe in 6s ofa ol Hyon donno he sneer he topo Sour ‘dan ny to stati i wha you do pw. YoU ow Ye 25,50 fividng ech Se by 2 18-125 an 1/6 0625, Iost mate {Wha Yon aking fo, 316 = 185 and 6 = 5. ‘vote queso tht esa ans ies en por etig. Ti rae eay oe: arp te mutes eupeof SE(L SD SI We, te) Twenty pao lea 1275 yaa VAULT1, You bane paling that as S329 9h erent of How mach tthe doomed price? (Cau uy: Wis 80 percent of $3207 The never $256. ven ' gunn ike this fy are pnd th miner and we shores, con't ‘ata tot loud Forexpe: 8 pero S320 canbe braken So ‘9s ela ike 80 percent of 8154, $256, 1s now sting for 20 15, How many Dela Alrins plas wl take off nthe next Bow fo ‘hore te several ways to eta His gueson. One way it sta by cing othe suber of spo inthe United Stes Mos sats have fone ro lage mors ror hich aor eure ear. Soon aver Doc asme ht three 12 lege por peste. Fal, i 00s) ‘hate et ple departs every TO ines, You ca eta ete 6 ke ol per boar or ac orto you can este hat tee me 1.50% 607140 Det planes aking of isha, 16, A srlght fh bss four-ofs-knd In poke Beats I mare ly. Hat ink about how many aight Nasbes there ape —if 8 don't count wraparound straghs, you can have 4 salt sh Hatng om any cad rm toto 10 ay sl (ne pe ui, That Incas thee are 36 straight Tse possible. But how many four of ‘isa there only 18 Wha wean Wh th eessoing? Ines; You sol ink both ference Between aight fh Insite, ht what shoul sik you a the problem with he ine of na hr ae acy hol ba of fear Rands 42-4). ‘There are ctl 624 (464 13} fe al 0 pl oat ny in der to eae tat you have 3 ‘Ths Lat aie ft one sacl, ae eon ane tb aber Sonetines you're not supposed hk ht had SMEARS. wauersttiit 148,18 Tellme good je that elt sexist nor rat. Have ew ng ast joes ae 19,11 wert Altra in-you-tiepuestint is am with pels, hom many ‘mits an bes. Hom arto sou have to go to average tam oar? This is somating of a ik stn, and was resem resid by 8 Golda cans. The it Ua of any people sy 90 ls ap a beanie Ifo ave done slap at 3 mes an hos You Rave steady ten two eines. Two miu the tl st ft ou ‘wl ave tk in rer aneaze 60 mile an howe Therefor, 8c ot everage 0 les ar overt 0 aps a6 VAULT 207 vnFINAL ANALYSISDont be sear off by te Honor stores you may have bd abot finance tonne af seers, opie tah gues o quis dvgned a eh jou ff gard jt rember et oo a Jat ing ge kao You Tey want fd ou i You caw hance tej Jour terested a specially if you have to pal an alngier Remember to study the relevant Sean tp If youre interes guy postr, ko what he ack kets ig. Io auton othe MA ceparmen ge kw he ferro deal at you've fond nretingepsaly fae el wa oe Uy tem thie you'e ering Over make Sue 30 havea good ‘esp i inane concepts acorn our ioterviewer bl ou have he Sty to leathers emo apest theo. stout yousef Yul ell them chou you Rabbis an less, your topo baking (rset manages, vena cape) and why ye ‘ver be content. you've peace our nse at doe Jor ezteh most ofthe qesons soul be answeabl i 96 ake te tne think abot eat eye looking foe Renter to des and se pessoal, chAPPENDIXFinance Glossary alae Shot: One ofthe four ise Fini statements th Rass ‘Sheet presen he feancial on of econ at hen oat in tne, inctaing AS5¢6, Linse, sd Ea epee be he Bond pre: The pice he onder (he lend pays he bon ise (he ure) Bp Bald te toad fe, ave a lim on te eh icumened on ba, and spreads: Te difrense betwen the eda comport an USS Treasury eum of snr ue atts. Bay she The lis fiesta banks mfr, peso nad ‘iter ets often clad “intial inet") tt ay the socks, bons and scares sol bythe evesmea banks, (The aves ans Stal hese rat iets ae ou he “eli” ‘Caabe bond bod ihatcan be bough back ease sot mie paying re coupon payments inthe Fie (Call opin: An opin tat ie Here Hh to pus a see fora specie on before apse expan date Carita Asset Pricing Model (CAPA: A col telat the disco re ofa cempy's cash ows. Commerc tank: A bak dat leds, rth than es tones. For ‘camp fa company warts SH los to open podton ant an apfoath a camera bank le Bank of Aerie or Cian for leans Coreasingy, cmmerial Has ae aso providing investment ‘inking sees clin) ‘Commercial paper Sorte comport eb ily sang in nine Commis: Asst (ysuly spiel ptedves of meals) hat aepict, For example, cor, whut ad bbe general ede atone pie 08 ome matte wore, covneship ners ina company (as opps to pce tock, eo) ‘he vat majorty of sek traded she maou tay common, a omen sok eables invest ten company aers An al point myo hele withstand of sos or tte managment ‘Comparble ransetons (om: Aretod of valuing a conpsay foe meg orsgtston at anos saying andr rancor. Convertible prefered stock: A type of equity sud by company, onertbl fred sok fen id when ann® ses el titer sig common sick or sight det. Perel eck pa 3 ‘vied, similar t how a ood pays coupon paymens bails Se and ei nd os fen ed a ean or 8 ky apy 9 ‘an capt wien eit esr ety woke Capital market equlibriam: The principle tat chere should be elit in he hl inert ae. Convert bands Bond th ce converted int speci mero (Cost of God Sol: The dit ot of racing merchant. cade oss of bo elpmen ard mers cea te fase pode. or ‘Coupon payments: The payments of ie ha fe bod se aes 0 she bot Credit ratings: The ats vento tod y crt agence These ts Inst ter of et ‘Curreacy apreiton: When «canes value sig eave aber ‘Currency depreciation: When acurecy's vale lg eave aber SNARE. wauerseiiit 181‘Careney revaluation: Woon scarey sergio nde fed exchange corporat nd andthe ee on ap eherwie ental goverment Bond eta vik Theis tat he company ising abo may g tarp and flo a, Derivatives: An ste who vale i ied fom the po of anater soe Beam inl el optons, pat epost ae Die mergers A meg in ws the acqcng company's carigs per share decree Discount rate: A ue at meses the ek of a aes, an be Divcounted Cash Flaw ana (DCF): A mth of valustin sat kes the et presen vale of he fs csh Pow of company Dive poyment ya company 6 steelers of is stock, aly ‘tiny ate seo al of he piso ler. [BLA Emig tors rere Aor Tas Usd approximate caring {orth ppc of ean ee cas ora dca cash Do. [BBIT Eanings Bfoe Inst nd Tn [BBUTDA: Eamings Before erst, Tees, Depesitin and Amoi. interval: Levers le ofthe ompany he Egy Ve ps uly fa soc, sok. Buy mens ones i @ company that i The Fe: The Fadel Reserve Bot which manages the county's conan hy eng ner es ined inome Bc and her sci hat er ed te ofr Bonds re pial sued goverment, corporation and anaes Fat Te umber of hes aval foe wa nth ake tes the Ti. ys2 VAULTS‘lating ate: A ines te ht pega ot ts uc sth ae codons eng, Forward contrat A coi! hcl for Fut very of nas 30 omard exchange rate: The ce of eueases a Which they can be se an sl foie dle ‘Forward aes for bond: The areclpon nts tes fra hod tobe fate inte fre Fare catract: Aon htc othe very ofan attra vale ata spected delivery eat date or a ape upon ce A ‘sure pe of fnward cons ht ini tnd raced om 0 chats, rd wos pes ar Sete ah end eh a Gas-Steagal At: Par of te leplain pase dig the Deesive (GlusStgal as pase 1933) dige o elp prevet fae ark {ale - the eablaient ofthe FDIC. wala prt offi movement ‘The Gln Seagal Act slit Anse’ invertent bkng (ting nd tng scutes) options fom commer tanking ig). For fale, 7 Morgen was fred spin ll seus ws Mors ‘Sante Sine tnt 98, he Federal Reseve ae say weakened he tet lowing comercial nk oy ivestet a, Good A acco at nls ange sets a company’ may hve, Hedge: tlc positon inthe mare in ore tek ‘High i ond ae. junk Bons): Hands with pone eating at py save gh nr fre can be bog for el pda of face vale Holding Period Reta: The income card ove pero a esetge oft pe athe af the pero. Income Statement Ono of hfs base ancl sateen, he are od fin, and serps o Reveaes, apes and Ne eco Inia bbe Otering (PO): Te ces oF ever enseprens he POs ee thn ain one fe the company By arsing fo ake on padi SSN. waueretiiit 18ashuld company er whole wal of rue SEC lings nd funy emi and carings reports, nat eon posible shader twas Imestment grade bonds: Bons ith ih erst sigs that pay @ Leveraged Buyout (LHO): The byout ofa company with tormwed moet in aig tht conpary's asses a5 oltera LBOS wee te Crd of he dy he bead) 1985, When sucesso LBO Hes sah 5 Kanner, Kravis Rovers made s practice of buving compan, reset th, ad eseling thet aking hem pie ta sigan Ligeti: The sunt of puter stock rbd salable igi US. goverment bonds hye ado be highly id rents Sal «ap sok an sale fied coe ese fen a ale iii (they fee ro acl tae) ané srg cout 4, they bade a ‘The Long Mand: The 30.ear'S. Terry bn Tatar banda ed ase Sarin poi fr prising many eter bos, becuse Teast Bods Intaton For exp, compar se ab at aes “40 over Treurie"The 4 eters ass poi (10 fips = pecetse pein Market Captain): The i ae company nh sk mathe (tat Shares ousndig pee por shar), Money matt securities: This ee i poly wed 1 eres te CDs, Repurchase Agrees, Conmercial Paper (low-tsk comport ‘uss tar Thea J ly bat em ers that ve Diss Trea Mertgagstacd bond: Bonds clltelize Wy a pot of moran Ingest and pencil pays ae based on ie favil omeowns lung th mongge payment The mere ers he polo marae Necking te bond te ess ky ey Manges method: A mst of alng 3 cmpany ht nae king rule ofan cao sch pce oar, EBITDA, or een, ase VAULT‘Munipa Bonds: Boots isd by neal and sate goveramen, aka. ‘whi means faves in mais carn irs payee wither having 6 Iny felines Sometnes ives sve ep oe ste and lot {ats 0, Cnseqoeat, nips can py ver rsa [Net present vale (NPY) The pron val of sie of cash os ener nme he nia ese NPV ills ‘Seat of he inert are a money day ons moze enverible prefered stk, whch remains eating prey and peered ck Par ale: The simon ond ise il comity ek the ini, RE ato The ceo earings to. Tiss the tio ofa cong’ tock Dice te amine er hare, The her he PIE ra, ater iver beleve te company wil pow. Prime rate: The aver re U.S. banks chara compas as speci pce ono bea peed expan at Secures and Exchange Commision (SEC): eer gency that he ‘he Gls Staal Act ws exablshed at a oul of he sock het cash of 1829 andthe ensuing cers. The SEC reniors closure of Sinan inbenaton oso, an eects agaist Fad. abil ‘rade seeures mus it be approve by the SEC pro waig. Secure: To contr an ast nto a scary ta eam the be wl 9 Investors, New ay inane gros set can eure it se or etample 2 20jar morgace on Some ean be paged wih aber moras ihe fo shares hs ool of mors ea then Be ad Selling, General & Administrative Expense (SGA): Coss mu vey Invled in the piston of reenter" SGA Haat 36 pr of ‘xpenes om Gos Proto gt EBT. Spot exchange The pie of canes rms dlvey SSR. AULT ttt 188:‘Staten of Cah Fons: Ob of te fur beans anc ts nos nd outows diving peed pee. Statement of Retained Earnings: One of the fue base Hoan ‘Reuined Farrings account. Information such a8 dividends of announced Provider ineton sot what sompny'smanspement rine in ‘tock: Onnesip ia ecompary Soc swaps fom of MAA cin whey he ok fone sampany exchanged oe sock of ante Strong caren: A curney whose value Hsing ele ober Swaps A ype of date @ sap tan exchange of fur ca Hows, Pople sps inte fore gr exchange saps retest ae saps {OK An aml rp fle! y 8 pai omy th he Secu an Exchange Commision (SEC) Ides fiaaelliforatin, company Tenderers: Amathod by whic shots ede nf te Salers ofa company tan tengo gather a conollg re the company. Gerry the potential eqie wil ler to ay sack om Slits a much per vale than he markt ae Tremary secur: Secu nt by he US. aera Thee ate ive it Try il eau po yar, Traum (om 2 earto 10 ens ary) and Trey Bons 10 yest 10 eae) A ‘ey ae govramers gure, ofa cess ae conser ket. ‘Se whe US Tenure fave m9 del thy do ve re ate "sk fates ices, hte pc of UST wl era nderwite: Mos cron he vain oF reIPO sk perfored by Invests bans wen hey help camparis se scares ists “Tehealy te investet Bank bys te sce Ro he apy and tnmealy esl th cere Wo aves fra slightly Mager os, ase VAULTS‘ied to ca Te yield ond alt up ose prod wn bond ‘eae psd off by he ond een, pasa igh of incest ” ‘ied tw maturity The measure of be average rat of rum hat wl be ame on bod fits ough no and eld to ai, ere coupon bons: bard tht fers no coupon or inet payne 0 SMM. wauerstiiit 187About the Authors D.Bhatewedear isch en ame of a associate wth on of Wall Stes ‘bulge bach! inesineat uking ems Hee adi he Unies (of Chiegos Grant shoo Basins, némajrd in france ‘Dan Jaco wera ar who graded witha Hacer 9 Ars from Corel Univry in 1997 and rveived is MBA. from the Manche tise of Tec in 202. Dn ae wore st Merl Lynch in realestate picglievesnent gop mc, pie sess ‘shoal, as management conta’ PcewateroseeCooers thom UCLA ad 8 DIMBA fom the Wiarton Sebo! of Bess and eh Review. Heisamember ofthe New York Bar and isa member ofthe Board