Wallstreet Prep Valuation Questions A+ GRADED 2025

Wallstreet Prep Valuation Questions A+ GRADED 2025 Could you explain the concept of present value and how it relates to company valuations? - correct answers-The present value concept is based on the premise that "a dollar in the present is worth more than a dollar in the future" due to the time value of money. The reason being money currently in possession has the potential to earn interest by being invested today. For intrinsic valuation methods, the value of a company will be equal to the sum of thepresent value of all the future cash flows it generates. Therefore, a company with a high valuation would imply it receives high returns on its invested capital by investing in positive net present value ("NPV") projects consistently while having low risk associated with its cash flows. What is equity value and how is it calculated? - correct answers-Often used interchangeably with the term market capitalization ("market cap"), equity value represents a company's value to its equity shareholders. A company's equity value is calculated by multiplying its latest closing share price by its total diluted shares outstanding, as shown below: Equity Value = Latest Closing Share Price × Total Diluted Shares Outstanding How do you calculate the fully diluted number of shares outstanding? - correct answers-The treasury stock method ("TSM") is used to calculate the fully diluted number of shares outstanding based on the options, warrants, and other dilutive securities that are currently "in-the-money" (i.e., profitable to exercise). The TSM involves summing up the number of in-the-money ("ITM") options and warrants and then adding that figure to the number of basic shares outstanding. In the proceeding step, the TSM assumes the proceeds from exercising those dilutive options will go towards repurchasing stock at the current share price to reduce the net dilutive impact.