DCF & WACC
Walk me through a DCF.
Model answer
Project unlevered free cash flow for ~5-10 years. Discount each year back at WACC. Estimate a terminal value at the end (Gordon growth or exit-multiple method) and discount it too. Sum the discounted cash flows plus discounted terminal value to get enterprise value. Subtract net debt to get equity value, then divide by diluted shares for value per share.
This is one of the 20 free cards. Sign up free for 10 reps a day from the full 1,500+ bank.
More from DCF & WACC
- Why do you use unlevered free cash flow in a DCF and how do you calculate it?
- What is WACC and how do you calculate it?
- What are the two ways to calculate terminal value, and how do they differ?
- What discount rate do you use if you're discounting levered free cash flow?
- Two identical companies, one has more debt. Which has the higher WACC?
- A DCF gives a value that seems too high. Which assumptions would you check first?