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WALL STREET PREP PREMIUM EXAM
2026|CERTIFIED QUESTIONS AND
ANSWERS
What is generally not considered to be a pre-tax non-recurring (unusual or
infrequent) item? - correct-answer -Extraordinary gains/losses
what is false about depreciation and amortization - correct-answer -D&A may be
classified within interest expense
Company X's current assets increased by $40 million from 2007-2008 while the
companies current liabilities increased by $25 million over the same period. the
cash impact of the change in working capital was - correct-answer -a decrease of
15 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
cash flow for each year through 2014 as follows:
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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.
Calculate Company X's implied Enterprise Value by using the discounted cash flow
method: - correct-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
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: -
correct-answer -.13 per share overvalued
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the formula for discounting any specific period cash flow in period "t"is: - correct-
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 -
correct-answer -cash flow from period "t+1" divided by (discount rate-growth
rate)
the two-stage DCF model is: - correct-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 - correct-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 - correct-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
WALL STREET PREP PREMIUM EXAM
2026|CERTIFIED QUESTIONS AND
ANSWERS
What is generally not considered to be a pre-tax non-recurring (unusual or
infrequent) item? - correct-answer -Extraordinary gains/losses
what is false about depreciation and amortization - correct-answer -D&A may be
classified within interest expense
Company X's current assets increased by $40 million from 2007-2008 while the
companies current liabilities increased by $25 million over the same period. the
cash impact of the change in working capital was - correct-answer -a decrease of
15 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
cash flow for each year through 2014 as follows:
,2|Page
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.
Calculate Company X's implied Enterprise Value by using the discounted cash flow
method: - correct-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
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: -
correct-answer -.13 per share overvalued
, 3|Page
the formula for discounting any specific period cash flow in period "t"is: - correct-
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 -
correct-answer -cash flow from period "t+1" divided by (discount rate-growth
rate)
the two-stage DCF model is: - correct-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 - correct-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 - correct-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
