CFI FMVA Final Exam 2025–2026 | Comprehensive Practice
Questions & Detailed Answers
2025 format
Question 1
A company reports the following annual figures:
• Revenue: $950 million
• Cost of Goods Sold (COGS): $500 million
• Operating Expenses: $250 million
• Depreciation & Amortization: $50 million
• Interest Expense: $30 million
• Tax Rate: 25%
Required: Calculate the company’s Net Income.
Answer:
$90 million
Solution:
1. Gross Profit = Revenue – COGS = 950 – 500 = 450 million
2. EBITDA = Gross Profit – Operating Expenses = 450 – 250 = 200 million
3. EBIT = EBITDA – Depreciation = 200 – 50 = 150 million
4. EBT = EBIT – Interest = 150 – 30 = 120 million
5. Taxes = 120 × 25% = 30 million
6. Net Income = 120 – 30 = 90 million
Question 2
A company plans to invest $5 million in a project. The project is expected to generate $1.5
million in annual cash flows for 5 years. The company’s WACC is 8%.
Required: Calculate the Net Present Value (NPV) of the project.
Answer:
$985,050
,Solution:
This is a classic NPV of annuity calculation:
NPV = –Initial Investment + CF × [(1 – (1 + r)^–n) ÷ r]
NPV = –5,000,000 + 1,500,000 × [(1 – (1 + 0.08)^–5) ÷ 0.08]
= –5,000,000 + 1,500,000 × 3.9927
= –5,000,000 + 5,977,050
= $985,050
Question 3
Company ABC has the following capital structure:
• Market value of equity: $120 million
• Market value of debt: $80 million
• Cost of equity: 12%
• Pre-tax cost of debt: 6%
• Tax rate: 30%
Required: Calculate the Weighted Average Cost of Capital (WACC).
Answer:
9%
Solution:
WACC = (E/V) × Re + (D/V) × Rd × (1 – Tc)
= (120/200) × 0.12 + (80/200) × 0.06 × (1 – 0.30)
= 0.6 × 0.12 + 0.4 × 0.06 × 0.70
= 0.072 + 0.0168
= 0.0888 or 8.88% ≈ 9%
Question 4
A private company has the following financials:
• EBITDA: $10 million
• Debt: $15 million
• Cash: $3 million
• Industry average EV/EBITDA multiple: 8x
Required: Estimate the equity value using the industry multiple.
Answer:
$64 million
Solution:
1. Enterprise Value = EBITDA × Multiple = 10 × 8 = 80 million
2. Equity Value = EV – Debt + Cash = 80 – 15 + 3 = 68 million
Note: If the question had said "net debt" instead of listing debt and cash separately, the result
would differ.
,Question 5
You're valuing a company using a DCF. The projected Free Cash Flow (FCF) next year is $22
million and is expected to grow at 4% annually. The company’s WACC is 9%.
Required: Calculate the terminal value using the Gordon Growth Model.
Answer:
$457.6 million
Solution:
Terminal Value = FCF × (1 + g) ÷ (WACC – g)
= 22 × 1.04 ÷ (0.09 – 0.04)
= 22.88 ÷ 0.05 = $457.6 million
Question 6
You are analyzing a company with the following data:
• Current stock price: $40
• EPS (Trailing Twelve Months): $2.50
• Book Value per Share: $15
Required:
Calculate the Price-to-Earnings (P/E) ratio and Price-to-Book (P/B) ratio.
Answer:
P/E = 16x, P/B = 2.67x
Solution:
• P/E = Price ÷ EPS = 40 ÷ 2.5 = 16x
• P/B = Price ÷ Book Value per Share = 40 ÷ 15 = 2.67x
Question 7
A leveraged buyout (LBO) model assumes:
• Purchase price: $200 million
• Debt used: $150 million
• Equity used: $50 million
• Exit value after 5 years: $300 million
• Debt at exit: $100 million
Required:
Calculate the IRR on the equity portion.
Answer:
13.93%
Solution:
Equity Value at Exit = Exit Value – Debt = 300 – 100 = 200 million
Initial Equity = 50 million
, IRR = [(FV / PV)^(1/n)] – 1
= [()^(1/5)] – 1 = (4)^(0.2) – 1 ≈ 0.1393 or 13.93%
Question 8
You’ve built a 3-statement model in Excel. If Net Working Capital (NWC) increases by $5 million
in Year 1, how does this affect Free Cash Flow (FCF), assuming no other changes?
Answer:
FCF decreases by $5 million
Solution:
An increase in NWC reduces cash available to the business. Since FCF = EBIT(1 – T) +
Depreciation – CapEx – Change in NWC, an increase in NWC reduces FCF by the same amount.
Question 9
You are forecasting interest expense. A company has:
• Beginning debt balance: $100 million
• Ending debt balance: $120 million
• Interest rate: 6%
• No debt issuance mid-year (straight-line assumption)
Required:
Calculate interest expense for the year.
Answer:
$6.6 million
Solution:
Use average debt balance: (100 + 120) ÷ 2 = 110 million
Interest Expense = 110 × 6% = $6.6 million
Question 10
You are building a discounted cash flow (DCF) model. The projected Free Cash Flows (in
millions) are:
Year 1: 10
Year 2: 12
Year 3: 14
Terminal value at end of Year 3: $180
Discount rate: 10%
Required:
Calculate the enterprise value using DCF.
Answer:
$166.21 million
Solution:
Discount each cash flow and terminal value to present value:
Questions & Detailed Answers
2025 format
Question 1
A company reports the following annual figures:
• Revenue: $950 million
• Cost of Goods Sold (COGS): $500 million
• Operating Expenses: $250 million
• Depreciation & Amortization: $50 million
• Interest Expense: $30 million
• Tax Rate: 25%
Required: Calculate the company’s Net Income.
Answer:
$90 million
Solution:
1. Gross Profit = Revenue – COGS = 950 – 500 = 450 million
2. EBITDA = Gross Profit – Operating Expenses = 450 – 250 = 200 million
3. EBIT = EBITDA – Depreciation = 200 – 50 = 150 million
4. EBT = EBIT – Interest = 150 – 30 = 120 million
5. Taxes = 120 × 25% = 30 million
6. Net Income = 120 – 30 = 90 million
Question 2
A company plans to invest $5 million in a project. The project is expected to generate $1.5
million in annual cash flows for 5 years. The company’s WACC is 8%.
Required: Calculate the Net Present Value (NPV) of the project.
Answer:
$985,050
,Solution:
This is a classic NPV of annuity calculation:
NPV = –Initial Investment + CF × [(1 – (1 + r)^–n) ÷ r]
NPV = –5,000,000 + 1,500,000 × [(1 – (1 + 0.08)^–5) ÷ 0.08]
= –5,000,000 + 1,500,000 × 3.9927
= –5,000,000 + 5,977,050
= $985,050
Question 3
Company ABC has the following capital structure:
• Market value of equity: $120 million
• Market value of debt: $80 million
• Cost of equity: 12%
• Pre-tax cost of debt: 6%
• Tax rate: 30%
Required: Calculate the Weighted Average Cost of Capital (WACC).
Answer:
9%
Solution:
WACC = (E/V) × Re + (D/V) × Rd × (1 – Tc)
= (120/200) × 0.12 + (80/200) × 0.06 × (1 – 0.30)
= 0.6 × 0.12 + 0.4 × 0.06 × 0.70
= 0.072 + 0.0168
= 0.0888 or 8.88% ≈ 9%
Question 4
A private company has the following financials:
• EBITDA: $10 million
• Debt: $15 million
• Cash: $3 million
• Industry average EV/EBITDA multiple: 8x
Required: Estimate the equity value using the industry multiple.
Answer:
$64 million
Solution:
1. Enterprise Value = EBITDA × Multiple = 10 × 8 = 80 million
2. Equity Value = EV – Debt + Cash = 80 – 15 + 3 = 68 million
Note: If the question had said "net debt" instead of listing debt and cash separately, the result
would differ.
,Question 5
You're valuing a company using a DCF. The projected Free Cash Flow (FCF) next year is $22
million and is expected to grow at 4% annually. The company’s WACC is 9%.
Required: Calculate the terminal value using the Gordon Growth Model.
Answer:
$457.6 million
Solution:
Terminal Value = FCF × (1 + g) ÷ (WACC – g)
= 22 × 1.04 ÷ (0.09 – 0.04)
= 22.88 ÷ 0.05 = $457.6 million
Question 6
You are analyzing a company with the following data:
• Current stock price: $40
• EPS (Trailing Twelve Months): $2.50
• Book Value per Share: $15
Required:
Calculate the Price-to-Earnings (P/E) ratio and Price-to-Book (P/B) ratio.
Answer:
P/E = 16x, P/B = 2.67x
Solution:
• P/E = Price ÷ EPS = 40 ÷ 2.5 = 16x
• P/B = Price ÷ Book Value per Share = 40 ÷ 15 = 2.67x
Question 7
A leveraged buyout (LBO) model assumes:
• Purchase price: $200 million
• Debt used: $150 million
• Equity used: $50 million
• Exit value after 5 years: $300 million
• Debt at exit: $100 million
Required:
Calculate the IRR on the equity portion.
Answer:
13.93%
Solution:
Equity Value at Exit = Exit Value – Debt = 300 – 100 = 200 million
Initial Equity = 50 million
, IRR = [(FV / PV)^(1/n)] – 1
= [()^(1/5)] – 1 = (4)^(0.2) – 1 ≈ 0.1393 or 13.93%
Question 8
You’ve built a 3-statement model in Excel. If Net Working Capital (NWC) increases by $5 million
in Year 1, how does this affect Free Cash Flow (FCF), assuming no other changes?
Answer:
FCF decreases by $5 million
Solution:
An increase in NWC reduces cash available to the business. Since FCF = EBIT(1 – T) +
Depreciation – CapEx – Change in NWC, an increase in NWC reduces FCF by the same amount.
Question 9
You are forecasting interest expense. A company has:
• Beginning debt balance: $100 million
• Ending debt balance: $120 million
• Interest rate: 6%
• No debt issuance mid-year (straight-line assumption)
Required:
Calculate interest expense for the year.
Answer:
$6.6 million
Solution:
Use average debt balance: (100 + 120) ÷ 2 = 110 million
Interest Expense = 110 × 6% = $6.6 million
Question 10
You are building a discounted cash flow (DCF) model. The projected Free Cash Flows (in
millions) are:
Year 1: 10
Year 2: 12
Year 3: 14
Terminal value at end of Year 3: $180
Discount rate: 10%
Required:
Calculate the enterprise value using DCF.
Answer:
$166.21 million
Solution:
Discount each cash flow and terminal value to present value:
