Suppose that you're an investment banker pitching a valuation to a potential acquirer. The acquirer's CFO asks how your valuation would be affected by significantly higher than expected inflation. You explain that the target firm's: -Pricing power over customers enables it to raise nominal prices by the same proportion as nominal costs would increase; and that -Required nominal returns and terminal growth rates would rise by roughly equal amounts. In aggregate this is likely to result in an equity valuation that's: Select one: a. Significantly higher. b. Largely unchanged. c. Significantly lower. d. Not enough information. (Please all options information and correct answer)
Suppose that you're an investment banker pitching a valuation to a potential acquirer. The acquirer's CFO asks how your valuation would be affected by significantly higher than expected inflation. You explain that the target firm's: -Pricing power over customers enables it to raise nominal prices by the same proportion as nominal costs would increase; and that -Required nominal returns and terminal growth rates would rise by roughly equal amounts. In aggregate this is likely to result in an equity valuation that's: Select one: a. Significantly higher. b. Largely unchanged. c. Significantly lower. d. Not enough information. (Please all options information and correct answer)
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter5: Risk Analysis
Section: Chapter Questions
Problem 2QE
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Suppose that you're an investment banker pitching a valuation to a potential acquirer. The acquirer's CFO asks how your valuation would be affected by significantly higher than expected inflation. You explain that the target firm's: -Pricing power over customers enables it to raise nominal prices by the same proportion as nominal costs would increase; and that -Required nominal returns and terminal growth rates would rise by roughly equal amounts. In aggregate this is likely to result in an equity valuation that's: Select one: a. Significantly higher. b. Largely unchanged. c. Significantly lower. d. Not enough information.
(Please all options information and correct answer)
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