01 February 2010

Debt free cash free

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. Why is debt free cash free value generally higher than shares value?

  2. When net debt is greater than zero, we would expect debt free cash free value to be greater than shares value

  3. Net debt is usually greater than shares value

  4. A business has £120 million debt and £30 million surplus cash. What is net debt?

  5. Why are debt free cash free values used?

  6. Debt free cash free value is least likely to be:

  7. Your client is trying to value the business they own. You know that other businesses have sold at 6x debt free cash free values. The owner wants to know how much they might net out of the sale process. Do you:

  8. A business is valued at 5x its £10 million EBITDA (earnings before interest, tax, depreciation and amortisation) has £8 million surplus cash and no debt. How much would the seller expect to receive for their shares?

  9. Your client is buying 100% of a target business on a debt free cash free valuation of £150 million. As part of the acquisition your client will raise from the bank £100 million of debt. The target business already carries £20 million of debt, which is due to be repaid as part of the deal. How much extra debt will your client be carrying after the acquisition?

  10. Which one of the following statements is incorrect? Debt free cash free value and enterprise value measures:

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