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DCF MODELING RETAKE EXAM 2024/ACTUAL EXAM
FROM WALL STREET PREP WITH 100% CORRECT AND
VERIFIED ANSWERS AND RATIONALES/ WSP DCF
MODELING RETAKE EXAM/LATEST UPDATE 2024- 2025
Review: DCF Modeling Retake Exam
Question 1 The next two questions use the data below. The data will be repeated on the next question: You have been tasked with building a stand-alone DCF valuation for Milner Beverages, a publicly traded company, using the unlevered two- stage approach. You calculate the following: $ in millions (^) 2017 2018 2019 2020 2021 2022 2023 Unlevered free cash flow 110.0 120.0 150.0 170.0 200.0 250.0 280. In addition, you calculate the following: WACC = 8.00% Perpetuity growth rate (annual growth rate of unlevered free cash flows after 2023) = 3.00% Calculate enterprise value at the beginning of 2017 assuming all cash flows occur at year-end. Use whole numbers (i.e. 1 year exactly equals 1 period when calculating returns and discounting). $4,173. $4,271. $4,540. $6,505. $6,673. Question 2 This question uses the same data as the previous question, shown below. You have been tasked with building a stand-alone DCF valuation for Milner Beverages, a publicly traded company, using the unlevered two- stage approach. You calculate the following: $ in millions (^) 2017 2018 2019 2020 2021 2022 2023 Unlevered free cash flow 110.0 120.0 150.0 170.0 200.0 250.0 280. In addition, you calculate the following: WACC = 8.00% Perpetuity growth rate (annual growth rate of unlevered free cash flows after 2023) = 3.00% Using the mid-year convention, calculate the enterprise value as of December 31, 2016. Assume all cash flows, including perpetuity cash flows, occur midyear. $4,110. $4,306. $4,438. $6,709. $6,717.
It is January 1, 2017 and you are tasked with building a stand-alone DCF valuation for Guud, an organic food producer, using the unlevered two-stage approach. Based on cash flow forecasts, you have calculated (as of January 1, 2017): Enterprise value of $4,200 million Diluted shares outstanding of 500 million You have also collected the following forecasts below: $ in millions (^) 12/31/16A 12/31/17E 12/31/18E 12/31/19E Cash & Cash Equivalents $86.0 $94.6 $104.1 $114. Current Portion of Long Term Debt $7.0 $7.7 $8.5 $9. Long Term Debt $94.0 $103.4 $113.7 $125. In addition, you calculate the following: WACC = 00% Perpetuity Growth Rate = 00% Calculate the equity value per share on January 1, 2017 assuming all cash flows occur at year-end. Use whole numbers (i.e. 1 year exactly equals 1 period when calculating returns and discounting).
8.
Question 4 You are building a DCF for a manufacturing business and observe the following historical end-of-period working capital balances on the balance sheet: 2017A Inventory $2,987. Prepaid expenses $189. Accrued expenses $302. Accounts Payable $1,145. You assume that all working capital assets and liabilities will also grow at 5% annually over the next 5 years. What is the expected impact of working capital on unlevered free cash flow in 2022 of the forecast?
- $105. $105.
- $141. $141. $281. Question 5 You collect the following data for Andes Scientific, a publicly traded biotech firm: 10 year US treasury yield 2.4% Beta 0. Equity risk premium (ERP) 3.7% Pretax cost of debt 4.2% Tax rate 100 35.0%
1 and 2 1 and 3 2 and 3 2, 3 and 4 1, 2, and 5 Question 9 You would like to increase projected Unlevered Free Cash Flows in your DCF analysis. You could:
- Increase capital expenditures
- Decrease the tax rate
- Decrease future Accounts Payable estimates
- Decrease future Accounts Receivable estimates.
- Increase D&A estimates 1 and 2 3 and 4 2, 3, and 4 3, 4, and 5 2, 4, and 5 Question 10 In an unlevered DCF model, which of the following reflects the most reasonable approach and rationale for the treatment of stock-based compensation (SBC) in the calculation of unlevered free cash flows (UFCF)? Add back SBC to EBIT in the calculation of UFCFs, since it is a non-cash expense. Add back SBC to EBIT in the calculation of UFCFs, since the extra share dilution must be offset by a higher UFCF value. Subtract SBC from EBIT in the calculation of UFCFs, since it reflects a real cost and must reduce the value of UFCFs. Do not add back SBC to EBIT in the calculation of UFCFs, as SBC does reflect an economic cost and must be accounted for. None of the above. Question 11 An analyst is building a DCF for Anderson Plastics, a publicly-traded plastics manufacturer, with 120 million shares of common stock currently outstanding and trading at $85 per share. Using the unlevered approach, the analyst calculates enterprise value of $3 billion and net debt of $800 million ($1 billion in gross debt, less $200 million in cash). After checking her work, she realizes that she did not reflect the following information in her calculations: There is a $100 million convertible preferred stock on the balance sheet. There are 200,000 preferred shares outstanding, with a liquidation value of $500 per share, and each convertible into 4 shares of common stock at the option of the holder. The preferred shareholders receive no preferred dividends. Which of the following is the most appropriate adjustment needed to reflect the preferred stock details above? To answer the question, treat out-of-the-money convertible preferred stock as a debt-equivalent claim with no equity component and in-the-money convertible preferred stock as straight equity with no debt component. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide the equity value by a diluted share count of 120.0 million.
The analyst should leave net debt unchanged at $800 million. To arrive at equity value per share, divide the equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged at $800 million. To arrive at equity value per share, divide the equity value by a diluted share count of 120.0 million. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide the equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged. To arrive at equity value per share, divide the equity value by a diluted share count of 120. million. Question 12 An analyst is building a DCF using the unlevered approach and calculates unlevered free cash flows of $100 in the first forecast year and net debt of $800 ($1,000 in gross debt, less $200 in cash). After checking her work, she realizes that she did not reflect the following information in her calculations. The company is expected to report $20 in noncontrolling interest expense in the first forecast year. There is a $300 noncontrolling interest balance on the balance sheet which she believes reflects the market value of the minority holdings. Which of the following is the most appropriate treatment of the noncontrolling interests? To calculate enterprise value, reduce the base year free cash flows from $100 to $80. To arrive at equity value, the analyst should increase net debt from $800 to $1,100. To calculate enterprise value, leave the base year free cash flows unchanged at $100. To arrive at equity value, the analyst should increase net debt from $800 to $1,100. To calculate enterprise value, leave the base year free cash flows unchanged at $100. To arrive at equity value, the analyst should leave net debt unchanged at $800. To calculate enterprise value, reduce the base year free cash flows from $100 to $80. To arrive at equity value, the analyst should leave net debt unchanged at $800. Question 13 What is the impact of an increase in deferred tax liabilities of $20m per year on unlevered FCFs? Adjust UFCF up by $20m in each projected year. The terminal value (undiscounted) shouldn’t be modified. Net debt should be increased by the projected cumulative Tax liability. Adjust UFCF down by $20m in each projected year. The terminal value and net debt do not need to be modified. Adjust UFCF down by $20m in each projected year. The terminal value (undiscounted) should be decreased by the projected cumulative Tax liability. Net debt shouldn’t be modified. Adjust UFCF up by $20m in each projected year. The terminal value and net debt do not need to be modified. Adjust UFCF down by $20m in each projected year. The terminal value should not be changed. Net debt should be increased by the present value of DTLs. Question 14 It is April 25, 2017 and you have built a DCF valuing Google’s equity value at $675 billion. On December 12, 2016 Google announced a 2 for 1 stock split (affecting all share classes) that took effect on March 15, 2017. As of January 26, 2017, there were 297,117,506 shares of the registrant’s Class A common stock outstanding, 47,369,687 shares of the registrant’s Class B common stock outstanding, and 346,933,134 shares of the registrant’s Class C capital stock outstanding. In addition, Class B common stock has 10 votes per share, our Class A common stock has one vote per share, and our Class C capital stock has no voting rights. Google also reported the following activity for unvested restricted stock units (RSUs) for the year ended December 31, 2016:
Using the data from the “GHC Free Cashflow Buildup” workbook, calculate 2016 normalized, unlevered free cash flows. Assume the tax rate = 2016 tax expense / pretax income. 241,530. 268,855. 270,976. 282,966. 333,379. Question 18 For this question, please use the data found in this file: IS GHC Assumptions. Assuming 2021 Unlevered Free Cash Flow of $200,000, and using the Perpetuity Growth method and other assumptions in the GHC workbook, what is the Present Value of the Terminal Value as of 12/31/2016 for Graham Holdings? Assume a WACC of 8%. $2,722,332. $2,804,002. $2,858,449. $3,814,814. $4,764,082. Question 19 For this question, please use data in the “GHC Free Cashflow Buildup” you’ve already downloaded. Assuming a Present Value of the Terminal Value at 12/31/2016 of 2,500,000 and an Equity Value of 4,800,000, what is the implied Present Value of 2017-2021 unlevered cash flows? $920,501. $1,672,790. $3,910,904. $2,791,847. $6,672,790. Question 20 For this question, please use the data from both the “GHC Free Cashflow Buildup” and the “IS GHC Assumptions” files you’ve already downloaded. Using the Exit Multiple Method and the assumptions in the GHC workbook, what is the Present Value of the Terminal Value as of 12/31/ for Graham Holdings? For the Exit Multiple, assume 9.0x EBITDA. Assume a WACC of 8%. Note: D&A should be grown in line with the assumption for “Growth of every other income statement item through 2021.” $2,372,889. $2,869,530. $3,099,092. $3,254,047. $4,216,281.
