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DCF - Qualified Assessment (Template).xlsx

1
DCF Schedule – Important Dates
In order to properly discount cash flows to the present value, we must consider the timing of
when those cash flows occur.
Which of the following is NOT one of the important dates when creating a DCF valuation?
Review Later
Cash Flow Timing
Reporting Date
Valuation Date
Fiscal Year End

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DCF - Qualified Assessment (Template).xlsx

2
Time Quantity of Money
As an analyst, it’s important to understand how invested cash flows
compound into the future, as well as calculate the present value of a
future cash inflow.

 Open the attached Excel file and go to the worksheet labeled: 1-PV
and FV

Calculate the present value and future value, respectively.

Review Later
$51,875; $29,175
$47,159; $31,508
$31,508; $47,159
$29,175; $51,875
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DCF - Qualified Assessment (Template).xlsx

3
How Long to Forecast
When valuing a company, we typically assume the business is a going
concern.
Which of the following is the best definition of going concern?
Review Later
The business will operate for a finite amount of time and we know
exactly when the operations will end.
A going concern assumes the business operates indefinitely.
A going concern means the company is concerned it will cease
operations in the near future.
A going concern means the business is currently cash flow positive.

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DCF - Qualified Assessment (Template).xlsx

4
Discrete Forecast and Terminal Value
A discounted cash flow is typically comprised of two different stages or
periods.
Which of the following are the two different stages of a typical DCF, in
chronological order?
Review Later
Perpetuity Growth; Gordon Growth
Perpetuity Growth; Exit Multiple
Discrete Forecast; Terminal Value
 Terminal Value; Discrete Forecast

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5
Present Value of the Terminal Value
Although there are two different ways of deriving terminal value, either
method must be discounted back to the valuation date.

 Open the attached Excel file and go to the worksheet labeled: 2-PV
of Terminal

Using the perpetuity growth rate, calculate the present value of the
terminal value.
Review Later
$312,281
$313,375
$304,247
$313,590

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DCF - Qualified Assessment (Template).xlsx

6
Various Views of Value
Like any valuation methodology, it’s important to know the advantages
and disadvantages of a discounted cash flow valuation.
Which of the following is NOT an advantage of a DCF valuation?
 Review Later
Requires lots of inputs and can be very sensitive to some inputs
Modeling a company allows the analyst to learn a lot about the
business
Considered the soundest, most theoretically correct valuation
Useful when there are no good peers for the business being valued

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DCF - Qualified Assessment (Template).xlsx

7
Preferred Model Layout
Please sort the below choices according to our recommended model-
building structure.
Given the below choices, sort the order we feel that DCF models should be
designed, from first to last.
Review Later
3

Income Statement
4

Revenue Build
1

Dashboards
2

DCF

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DCF - Qualified Assessment (Template).xlsx
 8
Current and Deferred Taxes
Accounting principles require us to recognize taxes when they are
incurred. However, there is a difference in accounting between standard
accounting principles and tax accounting. It’s critical for an analyst to
understand the difference.
Which of the following is a correct statement?
Select ALL that apply.
Review Later
Deferred taxes are beneficial for governments as they increase near-
term tax revenue.
Current taxes are cash taxes to be paid in the near term.
Deferred taxes are non-cash taxes in the current period.
Deferred taxes are taxes that will be deferred to a later period due to
tax rules.

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9
Unlevered Free Cash Flows
Calculating unlevered free cash flows is crucial when conducting a DCF valuation.

 Open the attached Excel file and go to the worksheet labeled: 3-UFCF

Calculate the unlevered free cash flow for year 4. Assume all taxes are current.
Review Later
$47,545
$20,654
$35,494
$21,640
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10
Weighted Average Cost of Capital
Due to numerator/denominator consistency, an unlevered free cash flow (UFCF) valuation is
discounted using the weighted average cost of capital (WACC).

 Open the attached Excel file and go to the worksheet labeled: 4-WACC

Calculate the WACC.

Review Later
5.08%
9.17%
8.85%
5.40%

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11
Unlevering and Relevering Beta
Beta is the only company-specific input used to calculate cost of equity. In
order to minimize the standard error inherent in calculating beta, we
typically calculate an industry beta.

 Open the attached Excel file and go to the worksheet labeled: 5-

Beta

Calculate the target company’s levered beta by unlevering each peer

company’s beta.
Review Later
1.02
1.05
 0.75
1.06

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12
Calculating the Cost of Equity
The cost of equity is a key component in calculating WACC.

 Open the attached Excel file and go to the worksheet labeled: 6-Cost of Equity

Calculate the cost of equity.

Review Later
11.66%
9.66%
11.68%
11.64%

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13
Valuation – Perpetuity Growth Method
In practice, there are two different ways to calculate the terminal value in
a DCF.

 Open the attached Excel file and go to the worksheet labeled: 7-

Perpetuity

Calculate the enterprise value.

Review Later
 $319,592
$299,642
$449,692
$348,349

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14
Valuation – Terminal Multiple Method
In practice, there are two different ways to calculate the terminal value in
a DCF.

 Open the attached Excel file and go to the worksheet labeled: 8-

Terminal DCF

Calculate the enterprise value using the XNPV method.

Review Later
$186,468
$186,536
$192,293
$192,364

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15
Valuation – Terminal Multiple Method
In practice, there are two different ways to calculate the terminal value in a DCF.
Which of the following terminal multiples would be appropriate when conducting an unlevered
DCF?
Review Later
 Market cap / Revenue
Share Price / Earnings per Share
Enterprise Value / Net Income
Enterprise Value / EBIT

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16
Sensitivity Analysis – Data Tables
It is very common for analysts to sensitize key inputs to see a possible range of valuations.

 Open the attached Excel file and go to the worksheet labeled: 9-Data Table

Complete the data table and select the enterprise valuation given using a 4% growth rate and a
7.5% WACC, the value using a 1% growth rate and 9.5% WACC, respectively.
Review Later
$965,119; $903,617
$697,644; $1,503,484
$998,532; $781,622
$1,503,484; $697,644

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17
DCF Schedule – Partial Period Adjustment
In practice, there are two different ways to calculate the terminal value in
a DCF.
Which of the following is NOT a formula that would work in order to
calculate the partial period adjustment in a DCF? Assume dates are in row
9 in this hypothetical model.
(Some numbers may be off slightly due to leap years and day-count
conventions.)
Review Later
=DAYS(I9,H9)/365
=1-(I9-H9)/365
=(I9-H9)/365
=YEARFRAC(I9,H9)

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18
UFCF Schedule – Ensuring Consistency
Numerator/denominator consistency is critical in valuation.
Although the unlevered free cash flow (UFCF) valuation is more common
than the levered free cash flow (LFCF) valuation, it’s important to
understand which discount rates go with which methodology.
Please select the appropriate pair below.
Review Later
Unlevered FCF, Cost of Equity
Levered FCF, Cost of Equity
Levered FCF, WACC
Unlevered FCF, Capital Asset Pricing Model

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19
Unlevered Free Cash Flows
Calculating unlevered free cash flows is crucial when conducting a DCF
valuation.

 Open the attached Excel file and go to the worksheet labeled: 10-
UFCF Net Income

Using the net income method, calculate the unlevered free cash flow for
Year 2. Assume all taxes are current.
Review Later
$11,798
$16,388
$14,798
$13,547

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20
Calculating Equity Value per Share
An unlevered DCF valuation will derive the implied enterprise value of a
business, but many times we want to know the equity value per share.
Please select the appropriate steps in calculating the equity value per
share from an unlevered DCF.
Review Later
Equity Value per Share = An unlevered DCF discounted at the cost of
equity will return equity value, then divide by diluted shares outstanding
Equity Value per Share = Enterprise Value minus Debt plus Cash, all
divided by diluted shares outstanding
Equity Value per Share = Enterprise Value plus Net Debt, all divided by
diluted shares outstanding
 Equity Value per Share = Enterprise Value minus Cash plus Debt, all
divided by diluted shares outstanding