DCF – ESSENTIALS EXAM REVIEW QUESTIONS AND ANSWERS, RATED A+[LATEST EXAM UPDATES]

DCF – ESSENTIALS EXAM REVIEW QUESTIONS AND ANSWERS, RATED A+ How do you calculate Enterprise Value? - -Market Cap + (debt, preferred equity, and minority interest) - (Cash and investments) How do you calculate Free Cash Flows? - -FCF = (EBIT) X (1 - Tax%) + (Depreciation and Amortization) - (Expenditures) - (Increase in Working Capital) How do you calculate Terminal Value? - -Exit Multiple Method (EMM) : find the industry average multiple and multiply it by final year REVENUE if using revenue multiple (EV/revenue), or multiply it by final year EBITDA if using EBITDA multiple (EV/EBITDA) If Risk Free Rate is not given, what should you use? - -use the US Treasury yield in line with your projection window. (e.g. if you project a 5 year DCF then use 5-Year US treasury) Walk me thru a DCF? - -1. First, project your cash flows out for roughly 5-10 years 2. Second, discount these cash flows to account for the time value of money. Assume you are using unlevered FCF and calculate the Weighed Average Cost of Cashflows (WACC) 3. Third, assuming the company does not stop after the projected cash flows - determine the terminal value of the company. 4. Fourth, discount this terminal value to account for the t