Discounted Cash Flow Model Exam Wall Street Prep EXAM
2025 UPDATE/PRACTICE QUESTIONS AND CORRECT VERIFIED
ANSWERS (complete solutions) ASSURED SUCCESS/GRADED
A+!!!
What is the definition of Intrinsic Valuation (DCF)? - CORRECT ANSWER-This is
derived from the fundemental analysis of the company's cash flow generation
potential
What is the definition of Relative Valuation (Comps)? - CORRECT ANSWER-This
is derived by comparing a company to its comparable peers.
What is the definition of cash flows? - CORRECT ANSWER-This is one of the
annoying sticking points in finance. There are a million definitions for cash flows.
The one WSP uses is:
Cash Flows = Operating Cash Flows - Required Cash Reinvestment
1. Operating Cash Flows: Cash flows that come from the core operations of a
business
2. Required Reinvestments: Cash Reinvestments required to sustain the business's
expected rate of growth
, Which is better to use, DCF modeling or Comps modeling? - CORRECT ANSWER-
The answer is both. In theory, they should get to the same answer. This would be
the case if every company was valued at their intrinsic value on the market.
However, companies are sometimes overvalued and undervalued on the market.
It helps to have DCF as a way to calculate the value without relying on the market.
On the other hand, if you use incorrect growth drivers (such as an incorrect
growth rate) then your DCF model will be skewed. It is important to use both
options together to build a more complete picture of the real value of the
company.
What are the big DCF implementation Challenges? - CORRECT ANSWER-1. There
is no real consensus on how to implement DCF
2. Cost of Equity calculations are hotly contested
3. It requires detailed company financials that you might now always have
available
4. A DCF is very sensitive to changes in operating, terminal value, and cost of
capital assumptions
What is the difference between Unlevered and Levered DCF modeling? -
CORRECT ANSWER-1. Unlevered DCF modeling is for valuing the Enterprise
Value. This is because Enterprise Value is valuing the firm's value for all providers
of capital.
2. Levered DCF modeling is for valuing the Equity Value of the firm directly. You
factor in the debt payout so you can isolate the value of the firm that is going
back to equity holders only.
3. The other distinction to make is an unlevered DCF approach is only valuing
assets and liabilities related to the firm's core business operations. A levered DCF
approach also factors in non-operating income and expenses.
2025 UPDATE/PRACTICE QUESTIONS AND CORRECT VERIFIED
ANSWERS (complete solutions) ASSURED SUCCESS/GRADED
A+!!!
What is the definition of Intrinsic Valuation (DCF)? - CORRECT ANSWER-This is
derived from the fundemental analysis of the company's cash flow generation
potential
What is the definition of Relative Valuation (Comps)? - CORRECT ANSWER-This
is derived by comparing a company to its comparable peers.
What is the definition of cash flows? - CORRECT ANSWER-This is one of the
annoying sticking points in finance. There are a million definitions for cash flows.
The one WSP uses is:
Cash Flows = Operating Cash Flows - Required Cash Reinvestment
1. Operating Cash Flows: Cash flows that come from the core operations of a
business
2. Required Reinvestments: Cash Reinvestments required to sustain the business's
expected rate of growth
, Which is better to use, DCF modeling or Comps modeling? - CORRECT ANSWER-
The answer is both. In theory, they should get to the same answer. This would be
the case if every company was valued at their intrinsic value on the market.
However, companies are sometimes overvalued and undervalued on the market.
It helps to have DCF as a way to calculate the value without relying on the market.
On the other hand, if you use incorrect growth drivers (such as an incorrect
growth rate) then your DCF model will be skewed. It is important to use both
options together to build a more complete picture of the real value of the
company.
What are the big DCF implementation Challenges? - CORRECT ANSWER-1. There
is no real consensus on how to implement DCF
2. Cost of Equity calculations are hotly contested
3. It requires detailed company financials that you might now always have
available
4. A DCF is very sensitive to changes in operating, terminal value, and cost of
capital assumptions
What is the difference between Unlevered and Levered DCF modeling? -
CORRECT ANSWER-1. Unlevered DCF modeling is for valuing the Enterprise
Value. This is because Enterprise Value is valuing the firm's value for all providers
of capital.
2. Levered DCF modeling is for valuing the Equity Value of the firm directly. You
factor in the debt payout so you can isolate the value of the firm that is going
back to equity holders only.
3. The other distinction to make is an unlevered DCF approach is only valuing
assets and liabilities related to the firm's core business operations. A levered DCF
approach also factors in non-operating income and expenses.
