CFA DCF PRACTICE EXAM - (60 QUESTIONS) UP-TO-DATE ACTUAL EXAM QUESTIONS
AND 100% ACCURATE SOLUTIONS | VERIFIED ANSWERS - INSTANT PDF DOWNLOAD
Examiner/Administrator: CFA Institute
Candidate Name: ____________________________
Candidate ID: _______________________________
Date: ______________________________________
Examination Centre: _________________________
Instructions to Candidates:
This examination assesses your ability to apply discounted cash flow (DCF) valuation
techniques within equity analysis. You are required to interpret financial statements,
estimate free cash flows, determine discount rates, and evaluate intrinsic value under
varying economic assumptions. The exam contains approximately 60 questions; this
section includes Questions 1–30. You have 90 minutes to complete this section. All
answers must be selected carefully, as there is no penalty for guessing. Use of a financial
calculator is permitted. Show all reasoning mentally before selecting your answer.
,Disclaimer:
This is an original simulation designed for educational purposes and is not affiliated with
or endorsed by the official examining body.
Core Competency Areas:
Free Cash Flow Valuation (FCFF & FCFE)
Weighted Average Cost of Capital (WACC)
Terminal Value Estimation
Forecasting Financial Statements
Sensitivity and Scenario Analysis
Equity Valuation Models
This assessment is designed to evaluate a candidate’s mastery of intrinsic valuation
techniques using discounted cash flow methodologies, widely applied in investment
analysis and portfolio management. Candidates are expected to demonstrate proficiency
in financial modeling, risk assessment, and valuation interpretation consistent with
professional standards in equity research.
,Q1. A company is expected to generate FCFF of $120 million next year. The WACC is 10%,
and long-term growth is 4%. What is the firm's value?
A. $1,200 million
B. $1,500 million
C. $2,000 million
D. $2,400 million
Correct Answer: 🔴 C. $2,000 million
Explanation: 🟡 Firm value = FCFF / (WACC − g) = 120 / (0.10 − 0.04) = .06 =
2,000. A is too low due to incorrect denominator. B and D miscalculate growth adjustment.
Q2. Which assumption is most critical when applying a terminal value using the Gordon
Growth Model?
A. Short-term earnings volatility
B. Stable long-term growth rate
C. Dividend payout ratio
D. Tax rate
Correct Answer: 🔴 B. Stable long-term growth rate
Explanation: 🟡 Terminal value assumes perpetual growth stability. A affects interim
forecasts, C is irrelevant for FCFF models, D affects cash flows but not core assumption.
, Q3. FCFE is best described as:
A. Cash flow available to all capital providers
B. Cash flow after debt payments
C. Earnings before interest and taxes
D. Net income before dividends
Correct Answer: 🔴 B. Cash flow after debt payments
Explanation: 🟡 FCFE represents equity holders' residual cash flow. A refers to FCFF, C is
EBIT, D is incomplete.
Q4. A firm increases leverage significantly. What is the most likely impact on FCFE?
A. Decrease
B. No change
C. Increase
D. Becomes negative
Correct Answer: 🔴 C. Increase
Explanation: 🟡 Higher leverage increases borrowing inflows, boosting FCFE. A is incorrect
unless debt servicing dominates. B ignores leverage effect. D is situational.
AND 100% ACCURATE SOLUTIONS | VERIFIED ANSWERS - INSTANT PDF DOWNLOAD
Examiner/Administrator: CFA Institute
Candidate Name: ____________________________
Candidate ID: _______________________________
Date: ______________________________________
Examination Centre: _________________________
Instructions to Candidates:
This examination assesses your ability to apply discounted cash flow (DCF) valuation
techniques within equity analysis. You are required to interpret financial statements,
estimate free cash flows, determine discount rates, and evaluate intrinsic value under
varying economic assumptions. The exam contains approximately 60 questions; this
section includes Questions 1–30. You have 90 minutes to complete this section. All
answers must be selected carefully, as there is no penalty for guessing. Use of a financial
calculator is permitted. Show all reasoning mentally before selecting your answer.
,Disclaimer:
This is an original simulation designed for educational purposes and is not affiliated with
or endorsed by the official examining body.
Core Competency Areas:
Free Cash Flow Valuation (FCFF & FCFE)
Weighted Average Cost of Capital (WACC)
Terminal Value Estimation
Forecasting Financial Statements
Sensitivity and Scenario Analysis
Equity Valuation Models
This assessment is designed to evaluate a candidate’s mastery of intrinsic valuation
techniques using discounted cash flow methodologies, widely applied in investment
analysis and portfolio management. Candidates are expected to demonstrate proficiency
in financial modeling, risk assessment, and valuation interpretation consistent with
professional standards in equity research.
,Q1. A company is expected to generate FCFF of $120 million next year. The WACC is 10%,
and long-term growth is 4%. What is the firm's value?
A. $1,200 million
B. $1,500 million
C. $2,000 million
D. $2,400 million
Correct Answer: 🔴 C. $2,000 million
Explanation: 🟡 Firm value = FCFF / (WACC − g) = 120 / (0.10 − 0.04) = .06 =
2,000. A is too low due to incorrect denominator. B and D miscalculate growth adjustment.
Q2. Which assumption is most critical when applying a terminal value using the Gordon
Growth Model?
A. Short-term earnings volatility
B. Stable long-term growth rate
C. Dividend payout ratio
D. Tax rate
Correct Answer: 🔴 B. Stable long-term growth rate
Explanation: 🟡 Terminal value assumes perpetual growth stability. A affects interim
forecasts, C is irrelevant for FCFF models, D affects cash flows but not core assumption.
, Q3. FCFE is best described as:
A. Cash flow available to all capital providers
B. Cash flow after debt payments
C. Earnings before interest and taxes
D. Net income before dividends
Correct Answer: 🔴 B. Cash flow after debt payments
Explanation: 🟡 FCFE represents equity holders' residual cash flow. A refers to FCFF, C is
EBIT, D is incomplete.
Q4. A firm increases leverage significantly. What is the most likely impact on FCFE?
A. Decrease
B. No change
C. Increase
D. Becomes negative
Correct Answer: 🔴 C. Increase
Explanation: 🟡 Higher leverage increases borrowing inflows, boosting FCFE. A is incorrect
unless debt servicing dominates. B ignores leverage effect. D is situational.
