DCF Modeling Review Questions and Correct Answers

What are the line items for a DCF model? Sales COGS Gross Profit SG&A EBITDA Depreciation Amortization EBIT Tax rate Tax-effective EBIT Plus: Depreciation and Amortization Less: Capital Expenditures Less: Additions to Intangibles +- Changes in Working Capital Unlevered FCF What are the value drivers of a DCF model? Sales Growth COGS (as a % sales) SG&A (as a % sales) EBITDA Margin CapEx (as a % of sales) Depreciation (as a % of CapEx) Additions to Intangibles Amortization (amount) Changes in Working Capital (as a % of Sales) What are the steps in a DCF model? 1. Input the Unlevered FCF line items 2. Calculate the historical ratios and appropriate growth rates 3. Forecast net sales for the projected years 4. Project future operating expenses 5. Calculate totals 6.. Project Capital Expenditures & Depreciation 7. Project additions to intangibles and amortization 8. Make reasonable assumptions about future working capital requirements 9. Calculate unlevered free cash flow 10. Add "steps" to your assumptions 11. Calculate the NPV of the unlevered free cash flow 12. Calculate the terminal value 13. Calculate the PV of terminal value 14. Calculate the Enterprise Value 15. Calculate the Equity Value 16. Calculate the Equity Value per share 17. Sensitize the Equity Value per share