Summer Techs (W2)

What formula do you use to calculate Unlevered Free Cash Flow starting from Revenue?

Revenue - COGS - OPEX = EBIT. EBIT * (1 - Tax Rate) = NOPAT. Add back non-cash expenses, subtract CAPEX, and account for changes in Net Working Capital (NWC) to get Unlevered Free Cash Flow.

What is Enterprise Value?

Enterprise Value represents the theoretical price to acquire the whole company, as it includes equity, debt, and excludes cash.

How do you calculate Enterprise Value from Equity Value?

Equity Value + Total Debt - Cash + Preferred Stock + Minority Interest = Enterprise Value.

What are the steps for conducting a Discounted Cash Flow (DCF) analysis?

1. Project Future Cash Flows.

2. Calculate Terminal Value (Stage 2 Cash Flows).

3. Discount Stage 1 and Stage 2 to Present Value using WACC.

4. Add Stage 1 and Stage 2 cash flows to get Enterprise Value.

What is the typical discount rate used in a DCF?

The typical discount rate is the Weighted Average Cost of Capital (WACC), which represents the average rate of return required by a company's capital providers.

What is the WACC formula?

WACC = (Cost of Equity * % Equity) + (Cost of Debt * % Debt * (1 - Tax Rate)) + (Cost of Preferred * % Preferred)…

What is the Perpetuity Growth Method? What is its formula?

The Perpetuity Growth Method assumes a constant long-term growth rate for cash flows after the projection period. The formula is: (Final Year Cash Flows * (1 + Long-Term Growth Rate)) / (Discount Rate - Growth Rate).

What is a typical long-term growth rate for a DCF analysis?

Typically, the long-term growth rate is assumed to be near the country’s GDP, which for a US company is around 2.5-3%.

What is the Exit Multiple Method? How do we select a multiple?

The Exit Multiple Method assumes the company is sold using a multiple of a financial metric, usually EBITDA. The multiple is determined using comparable company analysis, typically the industry median or average.

Why do we typically project cash flows for 5-10 years?

Projecting less than five years is often unhelpful, while more than ten years is difficult to predict. This period is when a company typically reaches steady-state growth.