DCF & WACC interview questions

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.

Unlevered FCF excludes financing effects, so it's available to all capital providers and pairs with WACC and enterprise value. Calc: EBIT x (1 - tax rate) + D&A - capex - increase in net working capital. Start from EBIT, not net income, to strip out interest.

Weighted average cost of capital - the blended required return of all capital providers, used as the DCF discount rate. WACC = E/V x cost of equity + D/V x cost of debt x (1 - tax rate), where E and D are market values of equity and debt and V = E + D. Cost of equity usually comes from CAPM: risk-free rate + beta x equity risk premium.

Gordon (perpetuity) growth: TV = final-year FCF x (1 + g) / (WACC - g), assuming cash flows grow forever at a modest rate g. Exit multiple: TV = final-year metric (e.g., EBITDA) x a market multiple. Gordon is more theoretical/intrinsic; exit multiple is more market-based. Best practice is to cross-check one against the other.