We've covered projecting cash flows, calculating the WACC, and estimating terminal value. This practice session will help you connect these pieces and understand how they interact to produce a final valuation.
Engagement Message
Ready to build a valuation from the ground up?
Type
Fill In The Blanks
Markdown With Blanks
Let's practice a WACC calculation.
A company is funded with 60% equity and 40% debt. The cost of equity is 15% and the cost of debt is 5%.
WACC = (0.60 × [[blank:15%]]) + (0.40 × 5%) = 9% + 2% = [[blank:11%]]
Suggested Answers
- 15%
- 11%
- 10%
- 5%
Type
Multiple Choice
Practice Question
A company's final projected free cash flow is $200M. Its WACC is 11% and its perpetual growth rate is 3%. What is its Terminal Value? (Formula: FCF × (1+g) / (WACC-g))
A. $2.58B B. $1.82B C. $2.34B D. $2.75B
Suggested Answers
- A - Correct
- B
- C
- D
Type
Sort Into Boxes
Practice Question
Sort these changes in assumptions into the boxes that describe their effect on the final DCF valuation.
Labels
- First Box Label: Increases DCF Value
- Second Box Label: Decreases DCF Value
First Box Items
- Higher revenue growth
- Higher terminal growth
- Lower WACC
Second Box Items
- Lower revenue growth
- Higher WACC
- Higher expenses
Type
Swipe Left or Right
Practice Question
Let's test your knowledge of DCF inputs. Swipe each item to the assumption category it belongs to.
Labels
- Left Label: Cash Flow Item
- Right Label: Rate/Growth Item
Left Label Items
- Revenue projections
- Operating margin assumptions
- Working capital needs
- Capital expenditures
Right Label Items
- Weighted Average Cost of Capital (WACC)
- Perpetual growth rate
- Cost of Equity
- Cost of Debt
Type
Fill In The Blanks
Markdown With Blanks
Let's do a quick free cash flow calculation.
A company has operating cash flow of $500M. It needs to reinvest $150M in capital expenditures to maintain and grow its operations.
Its free cash flow for the year is $500M - [[blank:350M]].
Suggested Answers
- $150M
- $350M
- $500M
- $650M
