📦Level Basic: IB Technical #2

Welcome to the 2nd edition of Daily Technical Questions presented by TheFinanceGrind

First time reading here? Sign up here for the most common Bi-Daily Technical Investment Banking questions.

TODAY’S TECHNICAL INTERVIEW QUESTION

Walk me through a DCF (Discounted Cash Flow)

💬 How to Answer it in an interview

“A DCF values a company based on the present value of its future cash flows and its Terminal Value.

First, I project Unlevered Free Cash Flow over 5–10 years:
– Start with Revenue
– Subtract COGS and Operating Expenses → get EBIT
– Multiply by (1 – Tax Rate)
– Add back D&A
– Subtract CapEx and Changes in Working Capital

Then, I calculate the Terminal Value using either:
– The Exit Multiple Method
– The Gordon Growth Method

I discount both the Free Cash Flows and the Terminal Value back to present using the WACC to get Enterprise Value.

From Enterprise Value, I subtract Net Debt and other non-equity claims to arrive at Equity Value, then divide by the diluted share count to get the implied share price.”

✅ Must-Know Points (You Will Be Asked Follow-Ups):

1. Use Unlevered Free Cash Flow
→ Valuation is capital structure–neutral
→ Applies to all investors (debt + equity)

2. Discount with WACC
→ WACC = cost of capital from debt and equity weighted by capital structure
→ Reflects risk and opportunity cost

3. Terminal Value = majority of value
→ Be ready to defend growth rate (g) or exit multiple

4. Enterprise Value → Equity Value
→ Enterprise Value – Net Debt = Equity Value
→ Divide by diluted shares = Per-share Value

💣 Banker-Grade TL;DR

Project FCF: EBIT × (1 – Tax Rate) + D&A – CapEx – Changes in WC

Terminal Value: Exit Multiple or Gordon Growth

Discount: FCFs + TV at WACC → Enterprise Value

Equity Value: Subtract Net Debt → divide by diluted shares

BEFORE YOU GO!

Here’s How We Can Help You:

Internships/Jobs: Click here to join the WhatsApp Group chat for higher finance jobs posted in the market (updated Weekly).

Reward Program

Know someone else trying to break into Wall Street?

📩 Refer just 1 friend to TheFinanceGrind and you’ll unlock:
🧠 “The Must-Have PDF of The Most Common IB Technical Questions (Used in Real Interviews)”

👇 Your unique referral link is below — or check the bottom of any email from us.

No spam. No catch. Just one referral and the full breakdown is yours.

See you tomorrow.

- Jai 

Founder of TheFinanceGrind