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DCF
Questions with Detailed Verified
Answers Question: Walk me through a
DCF
Answer:
✓ A DCF is a discounted cash flow analysis. A DCF values the present
value of all future cash flows and terminal value.
✓
✓ First you project a company's financials using assumptions for rev
growth, expenses, and working capital. Then you work down to the
yearly FCF which you sum up and discount to a NPV based on the
discount rate WACC.
✓
✓ Once you have the present value of the CFs you determine the
company's terminal value using either the multiples method or the
Gordon Growth Method then discount using WACC.
✓
✓ Finally add the two together to determine the EV.
Question: Walk me how you get from Revenue to FCF in the projections.
Answer:
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✓ Subtract COGs and Operating expenses to get Operating income
(EBIT). Then multiply by (1-Tax rate), add back depreciation and other
non cash charges and subtract Capex and changes in working capital.
Confirm interviewer is asking for EBIT not EBT.
Question: What's an alternative way to calculate FCF aside from taking Net
Income and adding back depreciation, and subtracting changes in operating
assets/liabilities and CapEx.
Answer:
✓ Take cash flow from operations and subtract Capex and mandatory
debt payments (LFCF). To get ULFCF you need to add back the tax
adjusted interest expense and subtract the tax adjusted interest
income.
Question: Why do you use 5 or 10 years for DCF projections.
Answer:
✓ You do not want to make predictions any further into the future. Less
than 5 years would not be useful.
Question: What do you usually use for the discount rate.
Answer:
✓ WACC. Or 10% for standard oil and gas evaluation.
Question: How do you calculate WACC?
Answer:
DCF
Questions with Detailed Verified
Answers Question: Walk me through a
DCF
Answer:
✓ A DCF is a discounted cash flow analysis. A DCF values the present
value of all future cash flows and terminal value.
✓
✓ First you project a company's financials using assumptions for rev
growth, expenses, and working capital. Then you work down to the
yearly FCF which you sum up and discount to a NPV based on the
discount rate WACC.
✓
✓ Once you have the present value of the CFs you determine the
company's terminal value using either the multiples method or the
Gordon Growth Method then discount using WACC.
✓
✓ Finally add the two together to determine the EV.
Question: Walk me how you get from Revenue to FCF in the projections.
Answer:
, Page | 2
✓ Subtract COGs and Operating expenses to get Operating income
(EBIT). Then multiply by (1-Tax rate), add back depreciation and other
non cash charges and subtract Capex and changes in working capital.
Confirm interviewer is asking for EBIT not EBT.
Question: What's an alternative way to calculate FCF aside from taking Net
Income and adding back depreciation, and subtracting changes in operating
assets/liabilities and CapEx.
Answer:
✓ Take cash flow from operations and subtract Capex and mandatory
debt payments (LFCF). To get ULFCF you need to add back the tax
adjusted interest expense and subtract the tax adjusted interest
income.
Question: Why do you use 5 or 10 years for DCF projections.
Answer:
✓ You do not want to make predictions any further into the future. Less
than 5 years would not be useful.
Question: What do you usually use for the discount rate.
Answer:
✓ WACC. Or 10% for standard oil and gas evaluation.
Question: How do you calculate WACC?
Answer:
