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CFM Valuation Methods & DCF Modeling 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.

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  1. In a precedent transactions analysis, what does the 'control premium' refer to?

    Answer: The premium paid above the target's pre-deal market price to acquire control

    A control premium reflects the extra amount an acquirer pays above market price to gain a controlling interest and its associated strategic benefits.

  2. Which sensitivity analysis tool in Excel allows a financial modeler to test two variables simultaneously and display results in a matrix?

    Answer: Two-Variable Data Table

    A Two-Variable Data Table in Excel lets you vary two inputs simultaneously and see all output combinations displayed in a structured grid.

  3. When calculating the cost of equity using CAPM, which component measures the stock's sensitivity to market movements?

    Answer: Beta

    Beta quantifies a stock's systematic risk relative to the broader market; a beta above 1 means the stock is more volatile than the market.

  4. A company's WACC is 10% and its projected free cash flows grow at 3% in perpetuity. What is the terminal value using the Gordon Growth Model if Year 5 FCF is $50M?

    Answer: $714M

    TV = FCF × (1+g) / (WACC - g) = $50M × 1.03 / (0.10 - 0.03) = $51.5M / 0.07 ≈ $714M.

  5. In a sum-of-the-parts (SOTP) valuation, each business segment is valued separately primarily because:

    Answer: Different segments may warrant different valuation multiples or methodologies

    SOTP is used when a conglomerate's divisions operate in different industries with distinct risk profiles, growth rates, and appropriate peer multiples.

  6. Which financial metric is typically used as the denominator when applying an EV/Revenue multiple in early-stage company valuation?

    Answer: Next twelve months (NTM) projected revenue

    EV/Revenue multiples for high-growth companies typically use forward (NTM) revenue because it better reflects near-term scale and growth trajectory.