DCF Valuation Modeling Actual Exam
Questions and CORRECT Answers
Cash Flow?/Discount Rate? - CORRECT ANSWER✔✔- Unlevered Free Cash
Flow/Weighted Average Cost of Capital
UFCF formula - CORRECT ANSWER✔✔- UFCF = EBITDA − CAPEX − Working Capital
− Taxes,
where UFCF = Unlevered free cash flow
Enterprise Value - CORRECT ANSWER✔✔- UFCF/WACC = Cash flows available to all
capital providers/Cost of capital from all capital providers = Enterprise Value
Terminal Value - CORRECT ANSWER✔✔- The value of an asset, business, or project
beyond the forecasted period when future cash flows can be estimated
Terminal value assumes a business will grow at a set growth rate forever after the forecast
period
Two most common methods for calculating terminal value - CORRECT ANSWER✔✔-
Perpetual growth (Gordon Growth Model) and exit multiple
Perpetual growth method and exit multiple? - CORRECT ANSWER✔✔- The perpetual
growth method assumes that a business will generate cash flows at a constant rate forever,
while the exit multiple method assumes that a business will be sold.
Terminal Value formula - CORRECT ANSWER✔✔- Perpetual Growth --> PVn = CFn+1 / (r
- g),
where
PVn = Present Value in Year n (last year before terminal);
CFn+1 = Cash Flow in Year n+1 (terminal year);
, r = Discount Rate (WACC);
g = Terminal Growth
Net Debt formula - CORRECT ANSWER✔✔- Net Debt = Total Debt - Cash
Net Debt reflects cash being used to pay off debt
Equity Value formula - CORRECT ANSWER✔✔- Enterprise Value - Net Debt
Equity Value is the value that equity holders are entitled to (имеют право на)
Equity Value per Share - CORRECT ANSWER✔✔- Equity Value / Shares Outstanding
Comparable Trading Analysis - CORRECT ANSWER✔✔- Looks at the valuation for similar
peer companies that are publicly traded
This is a relative valuation technique
Target company is valued relative to where its peers are trading in public markets
Market View - Market participants move the stock prices for peer companies, so this
technique shows their view
Precedent Transaction Analysis - CORRECT ANSWER✔✔- Looks at the acquisition prices
for similar peer companies in recent transactions
This is a relative valuation technique
Target company is valued relative to where its peers have been acquired in past transactions
Questions and CORRECT Answers
Cash Flow?/Discount Rate? - CORRECT ANSWER✔✔- Unlevered Free Cash
Flow/Weighted Average Cost of Capital
UFCF formula - CORRECT ANSWER✔✔- UFCF = EBITDA − CAPEX − Working Capital
− Taxes,
where UFCF = Unlevered free cash flow
Enterprise Value - CORRECT ANSWER✔✔- UFCF/WACC = Cash flows available to all
capital providers/Cost of capital from all capital providers = Enterprise Value
Terminal Value - CORRECT ANSWER✔✔- The value of an asset, business, or project
beyond the forecasted period when future cash flows can be estimated
Terminal value assumes a business will grow at a set growth rate forever after the forecast
period
Two most common methods for calculating terminal value - CORRECT ANSWER✔✔-
Perpetual growth (Gordon Growth Model) and exit multiple
Perpetual growth method and exit multiple? - CORRECT ANSWER✔✔- The perpetual
growth method assumes that a business will generate cash flows at a constant rate forever,
while the exit multiple method assumes that a business will be sold.
Terminal Value formula - CORRECT ANSWER✔✔- Perpetual Growth --> PVn = CFn+1 / (r
- g),
where
PVn = Present Value in Year n (last year before terminal);
CFn+1 = Cash Flow in Year n+1 (terminal year);
, r = Discount Rate (WACC);
g = Terminal Growth
Net Debt formula - CORRECT ANSWER✔✔- Net Debt = Total Debt - Cash
Net Debt reflects cash being used to pay off debt
Equity Value formula - CORRECT ANSWER✔✔- Enterprise Value - Net Debt
Equity Value is the value that equity holders are entitled to (имеют право на)
Equity Value per Share - CORRECT ANSWER✔✔- Equity Value / Shares Outstanding
Comparable Trading Analysis - CORRECT ANSWER✔✔- Looks at the valuation for similar
peer companies that are publicly traded
This is a relative valuation technique
Target company is valued relative to where its peers are trading in public markets
Market View - Market participants move the stock prices for peer companies, so this
technique shows their view
Precedent Transaction Analysis - CORRECT ANSWER✔✔- Looks at the acquisition prices
for similar peer companies in recent transactions
This is a relative valuation technique
Target company is valued relative to where its peers have been acquired in past transactions
