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.
Read the first 6 CFM Valuation Methods & DCF Modeling flashcards as text
In a Discounted Cash Flow (DCF) model, which rate is used to discount projected free cash flows back to present value?
Answer: Weighted Average Cost of Capital (WACC)
The WACC reflects the blended cost of all capital sources and is the standard discount rate applied to unlevered free cash flows in a DCF model.
What does the terminal value in a DCF model represent?
Answer: The present value of all cash flows beyond the explicit forecast horizon
Terminal value captures the value of a business beyond the explicit forecast period, often representing the majority of total DCF value.
Which of the following is the correct formula for unlevered free cash flow (UFCF)?
Answer: EBIT × (1 - Tax Rate) + D&A - CapEx - Change in NWC
UFCF starts with after-tax EBIT, adds back non-cash charges, then subtracts capital expenditures and the change in net working capital.
When using the Gordon Growth Model to calculate terminal value, which assumption is most critical?
Answer: The perpetual growth rate of free cash flows
The perpetual growth rate (g) has an outsized impact on terminal value because small changes compound indefinitely in the perpetuity formula.
In comparable company analysis (Comps), which multiple is most useful for comparing companies with different capital structures?
Answer: EV/EBITDA
EV/EBITDA is capital-structure-neutral because enterprise value and EBITDA are both pre-debt metrics, making cross-company comparisons more meaningful.
A company has an enterprise value of $500M and equity value of $300M. What does the $200M difference most likely represent?
Answer: Net debt (total debt minus cash)
Enterprise Value = Equity Value + Net Debt, so the bridge between EV and equity value is primarily net debt (debt minus cash).