Discounted Cash Flow Model Exam
Wallstreet Prep LATEST UPDATE 2024
/ 2025 PASS A+
1. three equity securities valuation methods: dividend discount
model, com-prables model, discounted cash flow models
2. essense of DCF: using cash flows to value equity shares
3. earnings are not optimale in robust equity valuation: do not adequetely
incor-porate investments and ROIC
4. ROIC: return on capital investments
5. investments include: operating and capital
6. instead of using earnings: use free cash flows
7. free cash flows result: from a firm's operations and includes NOPAT
adjusted fornon cash items
8. free cash flows reflect: operating earnings adjusted for taxes, less
investedcapitals
9. FCF=: NOPAT-net investment
10. P=: FCF1/WACC-g
11. value or price represents: EV- both equity and debt holders
12. equity value: EV-market value of debt
13. in addition to estimating free cash flows, must also estimate: terminal
value
14. terminal value: seek or require if going to sell an investment at the
end ofhorizon
15. if free cash flows do not grow but are forecasted to remain constant:
valueof firm: EV=FCF/average required return to all claims
16. if the firm's cash flows are expected to grow at a constant rate
1/4
, indefinitely: value can be reduced to: FCF/average required return to all
calimants- long termgrowth (growth rate
17. to use constant growth model: the long term growth rate must be
less thanrequired rate of return
18. DCF attemps to measure value: of an entity or company
19. DCF adds market value of: net non-operating assets
20. free cash flows will be expected to grow: at a variable rates until a
constantor equilibrium growth is achieved
21. DCF estimates: free cash flows of entity, terminal value of the entity
22. discount CF and terminal value by the: required return to all investors to
derivePV of operations of entity
23. WACC is the: required return to all investors
24. reduce entity value by: market value of debt
25. DCF also values: the intrinsic value of equity
26. employ DCF to evaluates a firm's current: market value (price) in
context ofan investment or portfolio decision, an acquisition, a share
repurchase, etc.
27. DCF step 1: forecast sales and operating expenses
2/4
Wallstreet Prep LATEST UPDATE 2024
/ 2025 PASS A+
1. three equity securities valuation methods: dividend discount
model, com-prables model, discounted cash flow models
2. essense of DCF: using cash flows to value equity shares
3. earnings are not optimale in robust equity valuation: do not adequetely
incor-porate investments and ROIC
4. ROIC: return on capital investments
5. investments include: operating and capital
6. instead of using earnings: use free cash flows
7. free cash flows result: from a firm's operations and includes NOPAT
adjusted fornon cash items
8. free cash flows reflect: operating earnings adjusted for taxes, less
investedcapitals
9. FCF=: NOPAT-net investment
10. P=: FCF1/WACC-g
11. value or price represents: EV- both equity and debt holders
12. equity value: EV-market value of debt
13. in addition to estimating free cash flows, must also estimate: terminal
value
14. terminal value: seek or require if going to sell an investment at the
end ofhorizon
15. if free cash flows do not grow but are forecasted to remain constant:
valueof firm: EV=FCF/average required return to all claims
16. if the firm's cash flows are expected to grow at a constant rate
1/4
, indefinitely: value can be reduced to: FCF/average required return to all
calimants- long termgrowth (growth rate
17. to use constant growth model: the long term growth rate must be
less thanrequired rate of return
18. DCF attemps to measure value: of an entity or company
19. DCF adds market value of: net non-operating assets
20. free cash flows will be expected to grow: at a variable rates until a
constantor equilibrium growth is achieved
21. DCF estimates: free cash flows of entity, terminal value of the entity
22. discount CF and terminal value by the: required return to all investors to
derivePV of operations of entity
23. WACC is the: required return to all investors
24. reduce entity value by: market value of debt
25. DCF also values: the intrinsic value of equity
26. employ DCF to evaluates a firm's current: market value (price) in
context ofan investment or portfolio decision, an acquisition, a share
repurchase, etc.
27. DCF step 1: forecast sales and operating expenses
2/4
