WALL STREET PREP CORE DCF CONCEPTS EXAM - (30) UP-TO-DATE ACTUAL EXAM
QUESTIONS AND DETAILED SOLUTIONS | EDUCATIONAL SIMULATION WITH GUIDED
ANSWERS
Examiner/Administrator: Wall Street Prep (Curriculum & Training Division - Simulated
Reference)
CANDIDATE INFORMATION
Name: ___________________________
Candidate ID: ____________________
Date: ____________________________
Examination Centre: _______________
IMPORTANT INSTRUCTIONS (READ CAREFULLY)
This assessment is a professionally designed educational simulation based on widely
taught Wall Street Prep-style DCF modeling frameworks. It is intended solely for
training, practice, and conceptual mastery. Candidates are given 120 minutes to
complete 30 scenario-based questions. Each question has one correct answer.
Calculations should assume standard corporate finance conventions unless otherwise
,stated. Show conceptual understanding, not memorized formulas. No external aids are
permitted during assessment.
CORE COMPETENCY AREAS
Discounted Cash Flow (DCF) Valuation Mechanics
Free Cash Flow Construction
WACC Estimation
Terminal Value Modeling
Forecasting Assumptions
Enterprise Value vs Equity Value Bridge
Sensitivity Analysis
Capital Structure Adjustments
🧠 EXAM QUESTIONS (Q1–Q30)
Q1. A company projects stable revenues but rising depreciation due to capital
investment. How does this most directly affect Free Cash Flow (FCF)?
,A. Increases FCF due to tax shield
B. Decreases FCF due to higher cash expenses
C. No impact on FCF
D. Increases EBITDA
Correct Answer: 🔴 A. Increases FCF due to tax shield
Explanation: 🟡 Depreciation is a non-cash expense, but it reduces taxable income,
creating a tax shield and increasing FCF.
B is incorrect: depreciation is non-cash.
C is incorrect: it affects taxes and FCF.
D is incorrect: EBITDA excludes depreciation entirely.
Q2. Which adjustment is required when converting Net Income to Free Cash
Flow?
A. Add interest expense
B. Subtract depreciation
C. Add back depreciation and subtract capital expenditures
D. Subtract EBIT
Correct Answer: 🔴 C. Add back depreciation and subtract capital expenditures
Explanation: 🟡 FCF removes non-cash charges and includes actual cash investments.
, Depreciation is added back, while CapEx is deducted.
Q3. In a DCF, increasing the discount rate while holding cash flows constant
will:
A. Increase valuation
B. Decrease valuation
C. Have no effect
D. Increase terminal value only
Correct Answer: 🔴 B. Decrease valuation
Explanation: 🟡 Higher discount rates reduce present value of future cash flows.
Q4. Which metric is most commonly used as the starting point for unlevered
free cash flow?
A. Net Income
B. EBIT
C. EBITDA
D. Gross Profit
Correct Answer: 🔴 B. EBIT
Explanation: 🟡 EBIT reflects operating performance before capital structure effects.
QUESTIONS AND DETAILED SOLUTIONS | EDUCATIONAL SIMULATION WITH GUIDED
ANSWERS
Examiner/Administrator: Wall Street Prep (Curriculum & Training Division - Simulated
Reference)
CANDIDATE INFORMATION
Name: ___________________________
Candidate ID: ____________________
Date: ____________________________
Examination Centre: _______________
IMPORTANT INSTRUCTIONS (READ CAREFULLY)
This assessment is a professionally designed educational simulation based on widely
taught Wall Street Prep-style DCF modeling frameworks. It is intended solely for
training, practice, and conceptual mastery. Candidates are given 120 minutes to
complete 30 scenario-based questions. Each question has one correct answer.
Calculations should assume standard corporate finance conventions unless otherwise
,stated. Show conceptual understanding, not memorized formulas. No external aids are
permitted during assessment.
CORE COMPETENCY AREAS
Discounted Cash Flow (DCF) Valuation Mechanics
Free Cash Flow Construction
WACC Estimation
Terminal Value Modeling
Forecasting Assumptions
Enterprise Value vs Equity Value Bridge
Sensitivity Analysis
Capital Structure Adjustments
🧠 EXAM QUESTIONS (Q1–Q30)
Q1. A company projects stable revenues but rising depreciation due to capital
investment. How does this most directly affect Free Cash Flow (FCF)?
,A. Increases FCF due to tax shield
B. Decreases FCF due to higher cash expenses
C. No impact on FCF
D. Increases EBITDA
Correct Answer: 🔴 A. Increases FCF due to tax shield
Explanation: 🟡 Depreciation is a non-cash expense, but it reduces taxable income,
creating a tax shield and increasing FCF.
B is incorrect: depreciation is non-cash.
C is incorrect: it affects taxes and FCF.
D is incorrect: EBITDA excludes depreciation entirely.
Q2. Which adjustment is required when converting Net Income to Free Cash
Flow?
A. Add interest expense
B. Subtract depreciation
C. Add back depreciation and subtract capital expenditures
D. Subtract EBIT
Correct Answer: 🔴 C. Add back depreciation and subtract capital expenditures
Explanation: 🟡 FCF removes non-cash charges and includes actual cash investments.
, Depreciation is added back, while CapEx is deducted.
Q3. In a DCF, increasing the discount rate while holding cash flows constant
will:
A. Increase valuation
B. Decrease valuation
C. Have no effect
D. Increase terminal value only
Correct Answer: 🔴 B. Decrease valuation
Explanation: 🟡 Higher discount rates reduce present value of future cash flows.
Q4. Which metric is most commonly used as the starting point for unlevered
free cash flow?
A. Net Income
B. EBIT
C. EBITDA
D. Gross Profit
Correct Answer: 🔴 B. EBIT
Explanation: 🟡 EBIT reflects operating performance before capital structure effects.
