DISCOUNTED CASH FLOW MODEL EXAM NEWEST 2025 ACTUAL
EXAM COMPLETE 150 QUESTIONS AND CORRECT DETAILED
ANSWERS (VERIFIED ANSWERS) |ALREADY GRADED A+
A DCF values a company based on: - (answers)The present value of its cash flows and the
present value of its terminal value.
Walk me through a DCF - (answers)First, you project out the company's financials using
assumptions for revenue growth, expenses and working capital. Then you get FCF for each year
which you sum up and discount to a NPV based on your discount rate, usually the WACC. Then
you determine the company's terminal value using either the multiples method or the Gordon
Growth Method and dicount that back to NPV using WACC. Add the two together to get the
estimated EV.
How do you get from revenue to FCF? - (answers)Revenue-COGS-Operating Expenses to get to
EBIT. Then multiply by (1-Tax Rate), add back Depreciation and other non-cash charges and
subtract CAPEX and the change in Working Capital. (This is unlevered FCF since we went off of
EBIT rather than EBT).
What is an alternate way to calculate FCF aside from taking NI, adding DEP and subtracting
CAPEX? - (answers)Take CF from operations and subtract CAPEX to get levered CF. To get
unlevered you need to add back the tax adjusted interest expense and subtract tax adjusted
interest income.
你是想要一篇“眼睛容易
阅读的”中文文章
Why do you use 5 or 10 years for a DCF? - (answers)Anything beyond 10 years is too difficult to
predict for most companies.
What do you usually use for the discount rate? - (answers)WACC, although you could use Cost
of Equity.
How do you calculate WACC? - (answers)Cost of Equity *% of capital structure composed of
equity+ cost of debt* % of capital structure composed of debt*(1-tax rate) + cost of preferred*%
of capital structure composed of preferred
, How do you calculate cost of equity - (answers)Use the Capital Asset Pricing Model = Risk free
rate +beta *Equity risk premium
What is the Risk free rate - (answers)Typically the yield on 10 or 20 year T-bond
What is risk premiuim - (answers)The % by which stocks are expected to out-perform risk-less
assets
How do you get Beta in the Cost of Equity calculation? - (answers)Unlevered beta= levered
beta/(1+(1-tax rate)*(total debt/total equity)
Levered Beta= unlevered beta*(1+(1-Tax rate)*(total debt/total equity)
Why do you have to un-lever and re-lever beta? - (answers)Levered beta reflects the debt already
assumed by each company but since each company's capital structure is different and if we want
to see how risky the company is regardless of debt structure then we must un-lever the beta. In
the end beta will be re-levered because we want the cost of equity to reflect the true risk
Which would you expect to have a higher beta a tech company or a manufacturing company? -
(answers)A technology company because the technology industry is seen as riskier then the
manufacturing industry
你是想要一篇“眼睛容易
What is the effect of using levered cash flow vs unlevered cash flow in your DCF? -
(answers)Levered cash flow gives you 阅读的”中文文章
equity value rather than enterprise value since the cash
flow is only available to equity investors (debt investors have already been paid with interest
payments)
If you use levered FCF what should you use as the discount rate? - (answers)You would use the
cost of equity rather than the WACC since we are not concerned with the debt or preferred stock
in this case
EXAM COMPLETE 150 QUESTIONS AND CORRECT DETAILED
ANSWERS (VERIFIED ANSWERS) |ALREADY GRADED A+
A DCF values a company based on: - (answers)The present value of its cash flows and the
present value of its terminal value.
Walk me through a DCF - (answers)First, you project out the company's financials using
assumptions for revenue growth, expenses and working capital. Then you get FCF for each year
which you sum up and discount to a NPV based on your discount rate, usually the WACC. Then
you determine the company's terminal value using either the multiples method or the Gordon
Growth Method and dicount that back to NPV using WACC. Add the two together to get the
estimated EV.
How do you get from revenue to FCF? - (answers)Revenue-COGS-Operating Expenses to get to
EBIT. Then multiply by (1-Tax Rate), add back Depreciation and other non-cash charges and
subtract CAPEX and the change in Working Capital. (This is unlevered FCF since we went off of
EBIT rather than EBT).
What is an alternate way to calculate FCF aside from taking NI, adding DEP and subtracting
CAPEX? - (answers)Take CF from operations and subtract CAPEX to get levered CF. To get
unlevered you need to add back the tax adjusted interest expense and subtract tax adjusted
interest income.
你是想要一篇“眼睛容易
阅读的”中文文章
Why do you use 5 or 10 years for a DCF? - (answers)Anything beyond 10 years is too difficult to
predict for most companies.
What do you usually use for the discount rate? - (answers)WACC, although you could use Cost
of Equity.
How do you calculate WACC? - (answers)Cost of Equity *% of capital structure composed of
equity+ cost of debt* % of capital structure composed of debt*(1-tax rate) + cost of preferred*%
of capital structure composed of preferred
, How do you calculate cost of equity - (answers)Use the Capital Asset Pricing Model = Risk free
rate +beta *Equity risk premium
What is the Risk free rate - (answers)Typically the yield on 10 or 20 year T-bond
What is risk premiuim - (answers)The % by which stocks are expected to out-perform risk-less
assets
How do you get Beta in the Cost of Equity calculation? - (answers)Unlevered beta= levered
beta/(1+(1-tax rate)*(total debt/total equity)
Levered Beta= unlevered beta*(1+(1-Tax rate)*(total debt/total equity)
Why do you have to un-lever and re-lever beta? - (answers)Levered beta reflects the debt already
assumed by each company but since each company's capital structure is different and if we want
to see how risky the company is regardless of debt structure then we must un-lever the beta. In
the end beta will be re-levered because we want the cost of equity to reflect the true risk
Which would you expect to have a higher beta a tech company or a manufacturing company? -
(answers)A technology company because the technology industry is seen as riskier then the
manufacturing industry
你是想要一篇“眼睛容易
What is the effect of using levered cash flow vs unlevered cash flow in your DCF? -
(answers)Levered cash flow gives you 阅读的”中文文章
equity value rather than enterprise value since the cash
flow is only available to equity investors (debt investors have already been paid with interest
payments)
If you use levered FCF what should you use as the discount rate? - (answers)You would use the
cost of equity rather than the WACC since we are not concerned with the debt or preferred stock
in this case
