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Financial Modeling, M&A Exam Questions
And Answers 2025 Update.
Net Present Value (NPV) - Answer✔Accept the project if NPV > 0. This means the project
creates value
Straight-Line Depreciation - Answer✔Depreciation is not a cash flow but reduces taxable
income, resulting in a tax shield
After-Tax Cash Flow - Answer✔After-tax cash flow = Revenue − Expenses − Taxes
Taxes are calculated as:
Taxable Income = Revenue − COGS − Depreciation
Taxes = Taxable income × Tax rate
Terminal Value (Salvage Value) - Answer✔The value of the project or asset at the end of its life,
often including the proceeds from the sale of the asset.
Key Point: Include tax on any gain/loss at the end of the life when calculating salvage value.
Three different phases of project - Answer✔Initial investment phase
Operating phase
Terminal phase
Initial Investment - Answer✔Capitalized costs (treated as an asset)
Non-capitalized costs (expensed items)
1
Financial Modeling, M&A Exam Questions
And Answers 2025 Update.
Net Present Value (NPV) - Answer✔Accept the project if NPV > 0. This means the project
creates value
Straight-Line Depreciation - Answer✔Depreciation is not a cash flow but reduces taxable
income, resulting in a tax shield
After-Tax Cash Flow - Answer✔After-tax cash flow = Revenue − Expenses − Taxes
Taxes are calculated as:
Taxable Income = Revenue − COGS − Depreciation
Taxes = Taxable income × Tax rate
Terminal Value (Salvage Value) - Answer✔The value of the project or asset at the end of its life,
often including the proceeds from the sale of the asset.
Key Point: Include tax on any gain/loss at the end of the life when calculating salvage value.
Three different phases of project - Answer✔Initial investment phase
Operating phase
Terminal phase
Initial Investment - Answer✔Capitalized costs (treated as an asset)
Non-capitalized costs (expensed items)
1
