CFM CFM Valuation Methods & DCF Modeling

Question 1

In a Discounted Cash Flow (DCF) model, which rate is used to discount projected free cash flows back to present value?

Accepted Answer

Weighted Average Cost of Capital (WACC)

Answer

Internal Rate of Return (IRR)

Answer

Return on Equity (ROE)

Answer

Cost of Debt

Question 2

What does the terminal value in a DCF model represent?

Accepted Answer

The present value of all cash flows beyond the explicit forecast horizon

Answer

The total debt outstanding at the end of the projection period

Answer

The residual book value of assets at the end of year five

Answer

The sum of depreciation and amortization over the projection period

Question 3

Which of the following is the correct formula for unlevered free cash flow (UFCF)?

Accepted Answer

EBIT × (1 - Tax Rate) + D&A - CapEx - Change in NWC

Answer

Net Income + Depreciation - CapEx - Change in Working Capital

Answer

EBITDA - Interest Expense - Taxes - CapEx

Answer

Revenue - COGS - SG&A - CapEx

Question 4

When using the Gordon Growth Model to calculate terminal value, which assumption is most critical?

Accepted Answer

The perpetual growth rate of free cash flows

Answer

The marginal tax rate applied to EBIT

Answer

The beta used in the CAPM equation

Answer

The length of the explicit forecast period

Question 5

In comparable company analysis (Comps), which multiple is most useful for comparing companies with different capital structures?

Accepted Answer

EV/EBITDA

Answer

Price-to-Earnings (P/E)

Answer

Price-to-Book (P/B)

Answer

Dividend Yield

Question 6

A company has an enterprise value of $500M and equity value of $300M. What does the $200M difference most likely represent?

Accepted Answer

Net debt (total debt minus cash)

Answer

The company's goodwill balance

Answer

Accumulated other comprehensive income

Answer

Deferred tax liabilities only