Deck 3: Discounted Cash Flow Analysis

Question 1

When there are limited or no) pure play peer companies, which valuation method should be used?

A)Comparable companies analysis
B)Precedent transaction analysis
C)Vertical analysis
D)Discounted cash flow analysis

Answer 1

D

Question 2

When there is no debt in the capital structure, what is WAAC equal to?

A)Cost of debt
B)Debt-to-total capitalization ratio
C)Equity-to-total capitalization ratio
D)Cost of equity

Answer 2

D

Question 3

Capex is expensed over its useful life through which of the following?

A)Depreciation
B)Amortization
C)EBIAT
D)Goodwill

Answer 3

A

Question 4

In a DCF analysis, what is used to capture the remaining value of the target beyond the projection period?

A)Intrinsic value
B)Terminal Value
C)WACC
D)Enterprise Value

Question 5

What is inventory divided by to obtain DIH?

A)COGS
B)Sales
C)Accounts Receivable
D)Gross Profit

Question 6

Calculate the company's free cash flow given the following information.

A)$250.0mm
B)$340.0mm
C)$500.0mm
D)$300.0mm

Question 7

Calculate the unlevered beta given the following information. SHAPE \* MERGEFORMAT

A)1.8
B)1.2
C)1
D)1.4

Question 8

In a DCF analysis, the target's projected FCF and terminal value are discounted to the present and summed to calculate the target's:

A)Enterprise value
B)Market cap
C)Equity value
D)Current value

Question 9

How does a decrease net working capital affect FCF?

A)Overstates FCF
B)Does not affect FCF
C)Understates FCF
D)It depends

Question 10

In which calculation is the exit multiple method or the perpetuity growth method used?

A)Present value
B)Terminal value
C)WACC
D)FCF

Question 11

Which of the following is considered a use of cash?

A)Amortization
B)Depreciation
C)Decrease in net working capital
D)Increase in net working capital

Question 12

Calculate the DSO of a company given the following information.

A)0.02
B)0.06
C)21.9
D)7.3

Question 13

Which expense reduces the life of an intangible asset?

A)Depreciation
B)Accelerated Depreciation
C)Amortization
D)Capex

Question 14

Calculate the market risk premium given the following information. SHAPE \* MERGEFORMAT

A)13%
B)6%
C)7%
D)20%

Question 15

A DCF analysis is premised on the principle that the value of a company can be derived from the present value of which of the following?

A)Revenues
B)Gross profits
C)Free cash flow
D)Net working capital

Question 16

Identify the following formula.

A)CAPM
B)DCF
C)PGM
D)EEM

Question 17

Calculate the CAPM given the following information. SHAPE \* MERGEFORMAT

A)12%
B)16%
C)20%
D)8.32%

Question 18

What happens to WAAC as the proportion of debt in a capital structure increases?

A)It stays the same
B)It decreases
C)It increases
D)It depends

Question 19

What is used to calculate the expected return on a company's equity?

A)FCF
B)CAPM
C)DCM
D)EEM

Question 20

Calculate the ratio of debt-to-total capitalization given the following information. SHAPE \* MERGEFORMAT

A)3%
B)2.7%
C)1.5%
D)2%

Question 21

Calculate the discount factor for $1.00 received at the end of one year, assuming a 12% discount rate.

A).80
B).95
C).87
D).89

Question 22

Which variable generally represents the majority of a DCF valuation?

A)CAPM
B)Beta
C)WAAC
D)Terminal value

Question 23

Calculate the terminal value using the EMM method given the following information. SHAPE \* MERGEFORMAT

A)8,400.0m
B)8.160.0m
C)8,000.0m
D)8,480.0m

Question 24

If a DCF is constructed on the basis of EBIT or EBITDA, what must be driven as a percentage of sales?

A)COGS
B)SG&A
C)Net working capital
D)D&A

Question 25

Which of the following is a true statement about capital expenditures?

A)They represent actual cash outflows
B)They represent theoretical cash outflows
C)They represent intangible assets
D)They are expenses

Question 26

Calculate the present value of FCF using a year-end discount factor given the following information. SHAPE \* MERGEFORMAT

A)$180.0m
B)$200.0m
C)$185.0mm
D)$190.0m

Question 27

All of the following assets can be amortized EXCEPT:

A)Copyrights
B)Patents
C)Goodwill
D)PP&E

Question 28

When determining a terminal value for a cyclical company, the banker must make sure that:

A)Earnings are normalized
B)Earnings are at a cyclical high
C)Earnings are at a cyclical low
D)The perpetuity growth method is used