Corporate Finance & Valuation Flashcards
6 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Corporate Finance & Valuation flashcards as text
What is the weighted average cost of capital (WACC)?
Answer: A blended cost of all capital sources weighted by their proportion in the capital structure
WACC blends the cost of equity and after-tax cost of debt weighted by their respective proportions, representing the minimum return a company must earn on its assets.
Which valuation method discounts projected future cash flows back to present value?
Answer: Discounted cash flow (DCF) analysis
DCF analysis estimates a company's intrinsic value by discounting its projected free cash flows back to the present using an appropriate discount rate.
What does the terminal value in a DCF model represent?
Answer: The present value of all cash flows beyond the explicit forecast period
Terminal value captures the present value of all cash flows expected after the discrete forecast period, typically using a perpetuity growth model or exit multiple.
In the capital asset pricing model (CAPM), beta measures:
Answer: A stock's systematic (market) risk relative to the overall market
Beta measures a stock's sensitivity to market movements; a beta of 1.2 means the stock tends to move 20% more than the market in either direction.
What is the enterprise value (EV) of a company?
Answer: Market cap plus total debt minus cash and equivalents
Enterprise value represents the total value of the firm available to all capital providers: equity market cap plus debt minus cash.
What does the EV/EBITDA multiple measure in relative valuation?
Answer: How much total enterprise value investors pay per dollar of operating earnings before non-cash charges
EV/EBITDA compares enterprise value to earnings before interest, taxes, depreciation, and amortization, allowing comparisons across capital structures and tax regimes.