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2025/2026 WALL STREET PREP
PREMIUM EXAM: TRANSACTION
COMPS MODELING WALL STREET
PREP ACTUAL EXAM WITH COMPLETE
ACCURATE QUESTIONS AND CORRECT
VERIFIED ANSWERS (A NEW UPDATED
VERSION |ALREADY GRADED A
You estimate that the weighted average cost of capital (WACC) for
Company X is 10% and assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final
projected year.
Calculate Company X's implied Enterprise Value by using the
discounted cash flow method: - ..........ANSWER.......2951.2 million
On January 1, 2014, shares of Company X trade at $6.50 per share,
with 400 million shares outstanding. The
company has net debt of $300 million. After building an earnings
model for Company X, you have projected free
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cash flow for each year through 2014 as follows:
Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for
Company X is 10% and assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final
projected year.
According to the discounted cash flow valuation method, Company X
shares are: - ..........ANSWER........13 per share overvalued
the formula for discounting any specific period cash flow in period
"t"is: - ..........ANSWER.......cash flow from period "t" divided by
(1+discount rate raised exponentially to "t"
the terminal value of a business that grows indefinitely is calculated
as follows - ..........ANSWER.......cash flow from period "t+1" divided by
(discount rate-growth rate)
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the two-stage DCF model is: - ..........ANSWER.......where stage 1 is
an explicit projection of free cash flows (generally for 5-10
years), and stage 2 is a lump-sum estimate of the cash flows
beyond the explicit forecast period
disadvantages of a DCF do not include - ..........ANSWER.......free cash
flows over the first 5-10 year period represent a significant
portion of value and are highly sensitive to valuation
assumptions
the typical sell-side process - ..........ANSWER.......shorter than the
buy side, buyer secures financing, and doesn't involve id'ing
potential issues to address such as ownership and unusual
equity structures, liabilities, etc.
the following happened in a recent M&A transaction: 1. PP&E of the
target company was increased from its original book basis of $600
million to $800 million to reflect fair market value for book
purposes in accordance with the purchase method of accounting. 2.
no "step-up" for tax purposes. 3. original tax basis of $650 million.
2025/2026 WALL STREET PREP
PREMIUM EXAM: TRANSACTION
COMPS MODELING WALL STREET
PREP ACTUAL EXAM WITH COMPLETE
ACCURATE QUESTIONS AND CORRECT
VERIFIED ANSWERS (A NEW UPDATED
VERSION |ALREADY GRADED A
You estimate that the weighted average cost of capital (WACC) for
Company X is 10% and assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final
projected year.
Calculate Company X's implied Enterprise Value by using the
discounted cash flow method: - ..........ANSWER.......2951.2 million
On January 1, 2014, shares of Company X trade at $6.50 per share,
with 400 million shares outstanding. The
company has net debt of $300 million. After building an earnings
model for Company X, you have projected free
,2|Page
cash flow for each year through 2014 as follows:
Year 2014 2015 2016 2017 2018 2019 2020
Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for
Company X is 10% and assume that free cash
flows grow in perpetuity at 3.0% annually beyond 2020, the final
projected year.
According to the discounted cash flow valuation method, Company X
shares are: - ..........ANSWER........13 per share overvalued
the formula for discounting any specific period cash flow in period
"t"is: - ..........ANSWER.......cash flow from period "t" divided by
(1+discount rate raised exponentially to "t"
the terminal value of a business that grows indefinitely is calculated
as follows - ..........ANSWER.......cash flow from period "t+1" divided by
(discount rate-growth rate)
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the two-stage DCF model is: - ..........ANSWER.......where stage 1 is
an explicit projection of free cash flows (generally for 5-10
years), and stage 2 is a lump-sum estimate of the cash flows
beyond the explicit forecast period
disadvantages of a DCF do not include - ..........ANSWER.......free cash
flows over the first 5-10 year period represent a significant
portion of value and are highly sensitive to valuation
assumptions
the typical sell-side process - ..........ANSWER.......shorter than the
buy side, buyer secures financing, and doesn't involve id'ing
potential issues to address such as ownership and unusual
equity structures, liabilities, etc.
the following happened in a recent M&A transaction: 1. PP&E of the
target company was increased from its original book basis of $600
million to $800 million to reflect fair market value for book
purposes in accordance with the purchase method of accounting. 2.
no "step-up" for tax purposes. 3. original tax basis of $650 million.
