ADVENTIS FMC LEVEL 1 STUDY GUIDE 2025/2026
QUESTIONS AND ANSWERS GRADED A+
✔✔what is DCF analysis - ✔✔it is the process of projecting future cash flows and
discounting them to their PVs by using TVM
✔✔steps for DCF - ✔✔1. project future cash flows
2. discount future cash flows to their PV's
3. Find the PV of all cash flows beyond the projection period (terminal value)
✔✔cash flow metric used for DCF analysis - ✔✔unlevered FCF
✔✔unlevered FCF - ✔✔- cash flow available to all stakeholders
- not affected by capital structure
- doesn't include interest expense
✔✔why is tax-effected EBIT used rather than net income - ✔✔- the valuation should not
depend on capital structure
- applying the tax-rate directly to EBIT without subtracting interest expense eliminates
the impact of capital structure to cash flow
✔✔cash flow is projected out in the projection period which is typically... - ✔✔5 years
but could be 10 years for startups
✔✔the analyst should end the model with a financial year representative of a... -
✔✔steady state to ensure the analysis does not over or understate total valuation
✔✔first component of determining the present value of a company is - ✔✔calculate
each unlevered FCF's PV by discounting them using the discount rate (cost of capital)
✔✔two methods for determining terminal value - ✔✔1. perpetuity method
2. EBITDA exit multiple method
✔✔perpetuity method assumes that the
FCF in the last year of the projection period... - ✔✔will grow into perpetuity at an annual
rate of growth (2-3%)
✔✔in practice, you would typically expect to see perpetuity growth do what when a
company matures - ✔✔decline
✔✔to calculate the terminal value under the perpetuity growth method, what model is
used - ✔✔Gordon-Growth Model
, ✔✔the Gordon-Growth Model rests on the assumption that... - ✔✔CF of the last period
will stabilize and continue at the same rate of growth forever
✔✔perpetuity growth rate represents - ✔✔an average growth rate
✔✔perpetuity growth rate can't exceed what - ✔✔local inflation rate because that would
signify that the company would eventually grow to be larger than the entire domestic
economy
✔✔EBITDA exit multiple assumes... - ✔✔that the company is sold in the last year of the
projection period at a multiple of EBITDA
✔✔what will investors do with these two methods - ✔✔use one method and back into
an implied value for the other method as a check
✔✔if a 12.0x EBITDA exit multiple implies a 5% perpetuity growth rate, what can be
said - ✔✔the exit multiple could be considered unrealistic
✔✔formula for PV of projection period - ✔✔PV = FV/(1+r)^N
✔✔formula for PV of terminal value - ✔✔PV = TV/(1+r)^N
✔✔formula for terminal value using perpetuity method - ✔✔TV = Terminal year FCF (1
+ g) / (r - g)
✔✔formula for terminal value using EBITDA exit multiple method - ✔✔Terminal year
EBITDA X EBITDA multiple
✔✔the discount rate used in a DCF analysis should be... - ✔✔the cost of capital for the
business being valued
✔✔Weighted average cost of capital (WACC) is used to... - ✔✔determine the discount
rate or a range of discount rates to be used in a DCF analysis
✔✔often companies add a premium to the WACC to determine... - ✔✔a hurdle rate
which will then be used as the discount rate
✔✔what is the WACC - ✔✔minimum return that a company must earn on an existing
asset base to satisfy all capital providers
✔✔WACC represents... - ✔✔the blended cost to debt holders and equity holders based
on the cost of debt and cost of equity
QUESTIONS AND ANSWERS GRADED A+
✔✔what is DCF analysis - ✔✔it is the process of projecting future cash flows and
discounting them to their PVs by using TVM
✔✔steps for DCF - ✔✔1. project future cash flows
2. discount future cash flows to their PV's
3. Find the PV of all cash flows beyond the projection period (terminal value)
✔✔cash flow metric used for DCF analysis - ✔✔unlevered FCF
✔✔unlevered FCF - ✔✔- cash flow available to all stakeholders
- not affected by capital structure
- doesn't include interest expense
✔✔why is tax-effected EBIT used rather than net income - ✔✔- the valuation should not
depend on capital structure
- applying the tax-rate directly to EBIT without subtracting interest expense eliminates
the impact of capital structure to cash flow
✔✔cash flow is projected out in the projection period which is typically... - ✔✔5 years
but could be 10 years for startups
✔✔the analyst should end the model with a financial year representative of a... -
✔✔steady state to ensure the analysis does not over or understate total valuation
✔✔first component of determining the present value of a company is - ✔✔calculate
each unlevered FCF's PV by discounting them using the discount rate (cost of capital)
✔✔two methods for determining terminal value - ✔✔1. perpetuity method
2. EBITDA exit multiple method
✔✔perpetuity method assumes that the
FCF in the last year of the projection period... - ✔✔will grow into perpetuity at an annual
rate of growth (2-3%)
✔✔in practice, you would typically expect to see perpetuity growth do what when a
company matures - ✔✔decline
✔✔to calculate the terminal value under the perpetuity growth method, what model is
used - ✔✔Gordon-Growth Model
, ✔✔the Gordon-Growth Model rests on the assumption that... - ✔✔CF of the last period
will stabilize and continue at the same rate of growth forever
✔✔perpetuity growth rate represents - ✔✔an average growth rate
✔✔perpetuity growth rate can't exceed what - ✔✔local inflation rate because that would
signify that the company would eventually grow to be larger than the entire domestic
economy
✔✔EBITDA exit multiple assumes... - ✔✔that the company is sold in the last year of the
projection period at a multiple of EBITDA
✔✔what will investors do with these two methods - ✔✔use one method and back into
an implied value for the other method as a check
✔✔if a 12.0x EBITDA exit multiple implies a 5% perpetuity growth rate, what can be
said - ✔✔the exit multiple could be considered unrealistic
✔✔formula for PV of projection period - ✔✔PV = FV/(1+r)^N
✔✔formula for PV of terminal value - ✔✔PV = TV/(1+r)^N
✔✔formula for terminal value using perpetuity method - ✔✔TV = Terminal year FCF (1
+ g) / (r - g)
✔✔formula for terminal value using EBITDA exit multiple method - ✔✔Terminal year
EBITDA X EBITDA multiple
✔✔the discount rate used in a DCF analysis should be... - ✔✔the cost of capital for the
business being valued
✔✔Weighted average cost of capital (WACC) is used to... - ✔✔determine the discount
rate or a range of discount rates to be used in a DCF analysis
✔✔often companies add a premium to the WACC to determine... - ✔✔a hurdle rate
which will then be used as the discount rate
✔✔what is the WACC - ✔✔minimum return that a company must earn on an existing
asset base to satisfy all capital providers
✔✔WACC represents... - ✔✔the blended cost to debt holders and equity holders based
on the cost of debt and cost of equity
