Discounted Cash Flow Model Exam Wall Street

Discounted Cash Flow Model Exam Wall Street Prep Latest Update - 150 Questions and 100% Verified Correct Answers Guaranteed A+

Advantages & Disadvantages to Trading Comps - CORRECT ANSWER: Advantages: reality based valuation... provides a framework to value a company based on current market conditions, industry trends and growth of companies with similar operating and financial statistics. A sanity shock to DCF... DCF is highly sensitive to explicit assumptions about a company's future performance, making it easy to have it say whatever you want. Comps relies on observable market prices as keyy input, making it a sanity check

Disadvantages: truly comparable companies are rare and differences are hard to

account for. Explaining value gaps b/t company and comparables involves judgement.Does not reflect intrinsic value since stock market is emotional and fluctuates irrationally. Less useful for public companies bc you'd be arguing that the market is wrong about pricing this company, but in general is right. Liquidity: thinly traded, small cap, or poorly followed stocks may not reflect fundamental value because of price swings due to liquidity issues

Discounted Cash Flow -> Present Value Math - CORRECT ANSWER: Present Value

t=0 = Cash Flow t=1 / (1+r)^t=1

Value t=0 = n=t∑t=1 Cash Flow t / (1+r)^t

Do finance professionals ever rely on book values? - CORRECT ANSWER: Yes, when

valuing financial institutions. That's because the balance sheet values of bank assets (loans and investments) and liabilities (deposits) tend not to deviate too far from actual fair value (unlike PP&E and intangible assets). The other major exception is when doing a liquidation analysis for a troubled company.

How do the three statements link together? - CORRECT ANSWER: 1 / 2

How do you value a bank (or XXX industry)? - CORRECT ANSWER:

How do you value a company when not using DCF or relative valuation? - CORRECT ANSWER: 1. Leveraged Buyout Analysis: a specific type of valuation approach that looks at the value of a company to new acquirers under a highly leveraged scenario with specific return requirements. Hybrid of DCF and comps valuation.

• Liquidation (Bankruptcy) Analysis: value a company under a worst case liquidation

scenario.

How do you value a company? - CORRECT ANSWER: There are a number of ways,

mainly fall under two categories:

• Intrinsic Valuation - based on ability of company to generate cash flows. DCF is most

common type of intrinsic valuation - looks at company's cash flow forecasts and risks.-Discounted Cash flow: value a company by looking at the future cash flows it can generate and discount them to the present to arrive at a present value of your business

• Relative Valuation - looks at multiples of comparable companies and applies

mean/median multiple from peer group. Can be multiples of current market values (trading comps) or historical acquisition multiples (deal comps) -Comparable company analysis: value a company by finding similar companies that are public and have readily observable market prices.-Comparable (precedent) transactions analysis: value a company by looking at the amount buyers have paid for acquiring similar companies in the recent past

How do you value a private company? - CORRECT ANSWER:

How do you value Bitcoin? - CORRECT ANSWER:

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