DCF

Question 1

WACC=?

Answer 1

Cost of equity * proportion of equity
+ cost of debt * proportion of debt * (1-T)
+ cost of prefs * proportion of prefs

Question 2

CAPM stands for

Answer 2

Capital asset pricing model

Question 3

CAPM =?

Answer 3

CAPM=
risk free rate + levered beta * market risk premium

(Market risk premium = market rate - risk free rate)

Question 4

Lev beta =?

Answer 4

Unlev beta (1+ [(1-T) total debt/equity])

Question 5

Unlev beta =?

Answer 5

Lev beta / (1+ [(1-T)* total debt/equity])

Question 6

Is lev beta or unlev beta larger?

Answer 6

Lev beta

Question 7

Diff ways to calculate cost of equity

Answer 7

• CAPM
• dividend capitalization model

Question 8

Dividend capitalization model is aka

Answer 8

Dividend growth model

Question 9

Dividend growth model is aka

Answer 9

Dividend capitalization model

Question 10

Dividend growth model what is it used for and what is the formula

Answer 10

Used to calc cost of equity
Aka divisent capitalization model
= dividends/share price + growth rate of dividends

Question 11

Do you use unlev or lev beta in CAPM?

Answer 11

Lev

Question 12

What discount rate do you use for lev DCF

Answer 12

Cost of equity

Question 13

What discount rate do you use for unlev DCF

Answer 13

WACC

Question 14

DDM =?

Answer 14

Current stock price = Next dividend payment / (required rate of return - growth rate)

Question 15

Gordon growth model =?

Answer 15

Current stock price = Next dividend payment / (required rate of return - growth rate)

Question 16

Steps to use the terminal exit multiple in DCF

Answer 16

1) get EV/ EBITDA or EV/ EBIT multiple of peers
2) apply to last year’s EBITDA calc
3) get EV, and discount back to current time period

Question 17

DCF calcs steps for EV

Answer 17

Similar to FCFF calc for each period

EBIT * (1-T) + DA - change in NWC - capex

Get NPV + NPV of terminal value using WACC

Question 18

DCF steps for equity value

Answer 18

Similar to FCFE calc for each period

NI + DA - change in NWC - caped - mandatory debt repayment

Get NPV + NPV of terminal value using cost of equity

Question 19

Go from EV to equity value

Answer 19

Equity value = EV - net debt