DISCOUNTED CASH FLOW MODEL EXAM
LATEST 2025-2026 UPDATE QUESTIONS AND
ANSWERS
free cash flows will be expected to grow - Answer-at a variable rates
until a constant or equilibrium growth is achieved
DCF estimates - Answer-free cash flows of entity, terminal value of the
entity
discount CF and terminal value by the - Answer-required return to all
investors to derive PV of operations of entity
WACC is the - Answer-required return to all investors
reduce entity value by - Answer-market value of debt
DCF also values - Answer-the intrinsic value of equity
employ DCF to evaluates a firm's current - Answer-market value (price)
in context of an investment or portfolio decision, an acquisition, a share
repurchase, etc.
DCF step 1 - Answer-forecast sales and operating expenses
, step 1 DCF: forecast NOPAT - Answer-begin with sales forecast, use
growth rate and variable growth rate
most useful to model - Answer-several scenarios using 3-5 distinct sales
growth models
model expenses based upon ratio of - Answer-COGS and operating
expenses to sales
revenue- operating expenses - Answer-operating income
operating expenses include - Answer-depreciation
DCF step 2 - Answer-forecast depreciation and investment
estimate depreciation - Answer-can be a percentage of sales or derived
from a forecast of changes in PP&E
estimate investment in working capital - Answer-if operating working
capital accounts ratios - AR, Inventory, AP- remaining constant, then
can model as a percentage of sales-- modeled
three equity securities valuation methods - Answer-dividend discount
model, comprables model, discounted cash flow models
LATEST 2025-2026 UPDATE QUESTIONS AND
ANSWERS
free cash flows will be expected to grow - Answer-at a variable rates
until a constant or equilibrium growth is achieved
DCF estimates - Answer-free cash flows of entity, terminal value of the
entity
discount CF and terminal value by the - Answer-required return to all
investors to derive PV of operations of entity
WACC is the - Answer-required return to all investors
reduce entity value by - Answer-market value of debt
DCF also values - Answer-the intrinsic value of equity
employ DCF to evaluates a firm's current - Answer-market value (price)
in context of an investment or portfolio decision, an acquisition, a share
repurchase, etc.
DCF step 1 - Answer-forecast sales and operating expenses
, step 1 DCF: forecast NOPAT - Answer-begin with sales forecast, use
growth rate and variable growth rate
most useful to model - Answer-several scenarios using 3-5 distinct sales
growth models
model expenses based upon ratio of - Answer-COGS and operating
expenses to sales
revenue- operating expenses - Answer-operating income
operating expenses include - Answer-depreciation
DCF step 2 - Answer-forecast depreciation and investment
estimate depreciation - Answer-can be a percentage of sales or derived
from a forecast of changes in PP&E
estimate investment in working capital - Answer-if operating working
capital accounts ratios - AR, Inventory, AP- remaining constant, then
can model as a percentage of sales-- modeled
three equity securities valuation methods - Answer-dividend discount
model, comprables model, discounted cash flow models
