BIWS DCF Exam Questions with Correct Answers| New Update 100% Verified by Experts
What is the primary purpose of valuing a company? To determine its Implied Value
according to your views, which can differ from its Current Value.
Why is it important to value public companies despite having Market Caps and Share Prices?
Market Caps and Share Prices reflect Current Value according to the market, which may be
incorrect; valuation helps assess if the market's views are accurate.
What are the advantages of using Public Comps for valuation? They are based on real
market data, quick to calculate and explain, and do not rely on far-in-the-future assumptions.
What are the disadvantages of Public Comps? There may not be truly comparable
companies, accuracy is reduced for volatile or thinly traded companies, and they may
undervalue long-term potential.
What are the advantages of using Precedent Transactions for valuation? They are based on
real prices paid for companies and may better reflect industry trends than Public Comps.
What are the disadvantages of Precedent Transactions? Data can be spotty and misleading,
there may not be truly comparable transactions, and deal terms and market conditions might
distort multiples.
What is a key advantage of DCF Analysis? It is considered the most 'correct' methodology
according to finance theory and is less subject to market fluctuations.
What is a key disadvantage of DCF Analysis? It is highly dependent on far-in-the-future
assumptions, and there is disagreement over calculations for key figures like Cost of Equity and
WACC.
,Which valuation methodology typically produces the highest Implied Values? It varies;
Precedent Transactions often produce higher values than Public Comps due to the control
premium, while DCF output is variable based on assumptions.
When is a DCF more useful than Public Comps or Precedent Transactions? When the
company has stable, predictable cash flows or when there are no good Public Comps or
Precedent Transactions available.
What is a control premium in the context of Precedent Transactions? The extra amount that
acquirers must pay to acquire sellers, often leading to higher Implied Values.
What is the relationship between DCF and assumptions in valuation? DCF tends to produce
the most variable output since it is highly dependent on the assumptions made.
What should you consider when choosing between DCF, Public Comps, and Precedent
Transactions? The specific circumstances of the company being valued, including its
maturity, cash flow stability, and availability of comparable data.
What is the trend in interview questions regarding valuation methodologies? Interviewers
are focusing more on conceptual understanding and application rather than simple
memorization of answers.
Why should candidates not dismiss high-level valuation questions? Understanding the
purpose of valuation is crucial for answering more detailed questions accurately.
What is the significance of the Implied Value in valuation? It indicates the potential
investment opportunity if it differs significantly from the Current Value.
How do market perceptions affect valuation? Market perceptions reflected in Market Caps
and Share Prices may not accurately represent a company's true value.
,What is a common misconception about valuation methodologies? That one methodology is
universally superior; the effectiveness of each depends on context and assumptions.
How does the stability of cash flows influence the choice of valuation methodology? Stable
cash flows make DCF more appropriate, while less stable companies may benefit from Public
Comps or Precedent Transactions.
What role do real market data play in Public Comps? They provide a basis for valuation that
reflects current market conditions and comparable company performance.
What is the importance of understanding trade-offs in valuation methodologies? It allows
for better application of the methodologies to specific deals and enhances analytical skills.
Why might a candidate be asked to walk through a DCF analysis in an interview? To assess
their understanding of the methodology and their ability to apply it to real-world scenarios.
What is the implication of saying 'the market might be wrong' in valuation? It suggests that
a thorough valuation can reveal discrepancies between market perceptions and actual
company value.
What should you rely on if a company has no path to positive cash flows? You must rely on
other methodologies besides DCF.
Why might a healthcare company be valued higher than an industrials company with the same
EBITDA? Healthcare is less asset-intensive, leading to lower CapEx and Working Capital
requirements, resulting in higher Free Cash Flow.
How do you value an apple tree? You value it by looking at comparable apple trees and
calculating expected future cash flows, then discounting these cash flows to Present Value.
, What is the formula for company value in DCF analysis? Company Value = Cash Flow /
(Discount Rate - Cash Flow Growth Rate), where Cash Flow Growth Rate < Discount Rate.
What are the two periods in a DCF analysis? The explicit forecast period and the Terminal
Period.
What is intrinsic valuation and how does it relate to DCF? Intrinsic valuation is based on a
company's expected future cash flows, making DCF an intrinsic valuation method, though it still
relies on market data for the Discount Rate.
What is the main purpose of building a DCF analysis? To determine a company's worth
based on the Present Value of its expected future cash flows.
What factors do you project in a DCF analysis? Revenue growth, margins, Working Capital,
and CapEx.
What is the role of the Discount Rate in a DCF analysis? It is used to discount future cash
flows to their Present Value.
What is the significance of the Terminal Value in a DCF analysis? It represents the Present
Value of all future cash flows beyond the explicit forecast period.
How does the Discount Rate affect the DCF analysis? It influences the Present Value of
future cash flows and is typically linked to peer companies.
What is the relationship between DCF and market data? While DCF is less dependent on
market data, it still incorporates market data for the Discount Rate and Terminal Value
multiples.
What is the primary purpose of valuing a company? To determine its Implied Value
according to your views, which can differ from its Current Value.
Why is it important to value public companies despite having Market Caps and Share Prices?
Market Caps and Share Prices reflect Current Value according to the market, which may be
incorrect; valuation helps assess if the market's views are accurate.
What are the advantages of using Public Comps for valuation? They are based on real
market data, quick to calculate and explain, and do not rely on far-in-the-future assumptions.
What are the disadvantages of Public Comps? There may not be truly comparable
companies, accuracy is reduced for volatile or thinly traded companies, and they may
undervalue long-term potential.
What are the advantages of using Precedent Transactions for valuation? They are based on
real prices paid for companies and may better reflect industry trends than Public Comps.
What are the disadvantages of Precedent Transactions? Data can be spotty and misleading,
there may not be truly comparable transactions, and deal terms and market conditions might
distort multiples.
What is a key advantage of DCF Analysis? It is considered the most 'correct' methodology
according to finance theory and is less subject to market fluctuations.
What is a key disadvantage of DCF Analysis? It is highly dependent on far-in-the-future
assumptions, and there is disagreement over calculations for key figures like Cost of Equity and
WACC.
,Which valuation methodology typically produces the highest Implied Values? It varies;
Precedent Transactions often produce higher values than Public Comps due to the control
premium, while DCF output is variable based on assumptions.
When is a DCF more useful than Public Comps or Precedent Transactions? When the
company has stable, predictable cash flows or when there are no good Public Comps or
Precedent Transactions available.
What is a control premium in the context of Precedent Transactions? The extra amount that
acquirers must pay to acquire sellers, often leading to higher Implied Values.
What is the relationship between DCF and assumptions in valuation? DCF tends to produce
the most variable output since it is highly dependent on the assumptions made.
What should you consider when choosing between DCF, Public Comps, and Precedent
Transactions? The specific circumstances of the company being valued, including its
maturity, cash flow stability, and availability of comparable data.
What is the trend in interview questions regarding valuation methodologies? Interviewers
are focusing more on conceptual understanding and application rather than simple
memorization of answers.
Why should candidates not dismiss high-level valuation questions? Understanding the
purpose of valuation is crucial for answering more detailed questions accurately.
What is the significance of the Implied Value in valuation? It indicates the potential
investment opportunity if it differs significantly from the Current Value.
How do market perceptions affect valuation? Market perceptions reflected in Market Caps
and Share Prices may not accurately represent a company's true value.
,What is a common misconception about valuation methodologies? That one methodology is
universally superior; the effectiveness of each depends on context and assumptions.
How does the stability of cash flows influence the choice of valuation methodology? Stable
cash flows make DCF more appropriate, while less stable companies may benefit from Public
Comps or Precedent Transactions.
What role do real market data play in Public Comps? They provide a basis for valuation that
reflects current market conditions and comparable company performance.
What is the importance of understanding trade-offs in valuation methodologies? It allows
for better application of the methodologies to specific deals and enhances analytical skills.
Why might a candidate be asked to walk through a DCF analysis in an interview? To assess
their understanding of the methodology and their ability to apply it to real-world scenarios.
What is the implication of saying 'the market might be wrong' in valuation? It suggests that
a thorough valuation can reveal discrepancies between market perceptions and actual
company value.
What should you rely on if a company has no path to positive cash flows? You must rely on
other methodologies besides DCF.
Why might a healthcare company be valued higher than an industrials company with the same
EBITDA? Healthcare is less asset-intensive, leading to lower CapEx and Working Capital
requirements, resulting in higher Free Cash Flow.
How do you value an apple tree? You value it by looking at comparable apple trees and
calculating expected future cash flows, then discounting these cash flows to Present Value.
, What is the formula for company value in DCF analysis? Company Value = Cash Flow /
(Discount Rate - Cash Flow Growth Rate), where Cash Flow Growth Rate < Discount Rate.
What are the two periods in a DCF analysis? The explicit forecast period and the Terminal
Period.
What is intrinsic valuation and how does it relate to DCF? Intrinsic valuation is based on a
company's expected future cash flows, making DCF an intrinsic valuation method, though it still
relies on market data for the Discount Rate.
What is the main purpose of building a DCF analysis? To determine a company's worth
based on the Present Value of its expected future cash flows.
What factors do you project in a DCF analysis? Revenue growth, margins, Working Capital,
and CapEx.
What is the role of the Discount Rate in a DCF analysis? It is used to discount future cash
flows to their Present Value.
What is the significance of the Terminal Value in a DCF analysis? It represents the Present
Value of all future cash flows beyond the explicit forecast period.
How does the Discount Rate affect the DCF analysis? It influences the Present Value of
future cash flows and is typically linked to peer companies.
What is the relationship between DCF and market data? While DCF is less dependent on
market data, it still incorporates market data for the Discount Rate and Terminal Value
multiples.
