Series 79 - Chapter 7 with verified solutions 2024

Series 79 - Chapter 7 Discounted Cash Flow Analysis - correct answer Fundamental valuation methodology derived from the present value of its projected free cash flow (FCF) Free Cash Flow - correct answer Utilized in DCF and derived from a variety of assumptions and judgments about its expected financial performance, including sales growth rates, profit margins, capital expenditures, and net working capital (NWC) Intrinsic Value - correct answer Valuation implied for a target by a DCF. As opposed to its market value, which is the value ascribed by the market at a given point in time (given by company and transaction comparables) Terminal Value - correct answer Used to capture the remaining value of the target beyond the projection period (i.e., its "going concern" value) Weighted Average Cost of Capital (WACC) - correct answer A discount rate commensurate with its business and financial risks. Applied to projected FCF and terminal value to determine their present value. Represents the weighted average of the required return on the invested capital (customarily debt and equity) in a given company Discounted Cash Flow Analysis Steps - correct answer I. Study the Target and Determine Key Performance Drivers II. Project Free Cash Flow III. Calculate Weighted Average Cost of Capital IV. Determine Terminal Value V. Calculate Present Value and Determine Valuation Unlevered FCF - correct answer The cash generated by a company after paying all cash operating expenses and taxes, as well as the funding of capex and working capital, but prior to the payment of any interest expense