Series 79 practice questionhardFinancial due diligence – DCF sensitivity
A DCF uses a 9% discount rate and next year's projected FCF is $8 million, growing at 3% perpetually. What is the closest present value today of the terminal value?
- A$154,667,000
- B$140,000,000
- C$133,333,333
- D$128,000,000✓ Correct answer
Explanation
Why D — $128,000,000
Use the Gordon Growth terminal value formula, then discount the result back one year. Terminal value at the end of next year is $8 million × 1.03 ÷ (9% - 3%) = about $137.3 million; discounting that amount at 9% gives about $126.0 million, so $128.0 million is the closest choice.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 995+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Collection, Analysis & Evaluation of Data questions
- During legal due diligence, what is the PRIMARY function of disclosure schedules in an acquisition agreement?
- A strategic buyer projects $10 million in annual cost synergies from an acquisition. During due diligence, the banker…
- A seller agrees to an environmental indemnity capped at $5 million for five years. After the third year, a $10 million…
- In a $250 million U.S. M&A transaction, under what circumstances is an HSR filing NOT required?
- During due diligence, a buyer identifies $30 million in net operating losses (NOLs) but estimates that IRC Section 382…
- During financial due diligence, the investment banker finds that the target is close to breaching its debt service…
- A private equity buyer is acquiring a division being carved out from a larger company. The target’s IT, HR, and finance…
- Which of the following is TRUE regarding environmental liabilities in an asset sale?