Series 79 practice questionmediumDCF Analysis
Which cash flow measure is most commonly discounted in an enterprise DCF model?
- ANet income
- BEBITDA
- CDividends per share
- DUnlevered free cash flow✓ Correct answer
Explanation
Why D — Unlevered free cash flow
An enterprise DCF model discounts unlevered free cash flow (UFCF) at the WACC to arrive at enterprise value. UFCF captures operating cash generation after taxes, reinvestment needs, and working capital changes but before any financing costs. Net income includes the effect of interest and is appropriate for equity valuation models, while dividends per share would be used in a dividend discount model. EBITDA does not account for taxes or reinvestment needs.
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
- In a comparable company analysis, what is the primary purpose of selecting peer companies?
- An investment banker is performing a DCF on a cyclical industrial company currently at peak earnings. Which of the…
- An investment banker selects five comparable companies with EV/EBITDA multiples of 8.0x, 9.5x, 10.2x, 11.0x, and 14.5x.…
- In a DCF analysis, what time period do the projected cash flows typically cover before a terminal value is calculated?
- When conducting a comparable company analysis, which of the following criteria is LEAST important in selecting peer…
- Which of the following is a key limitation of the DCF valuation methodology?
- An analyst notices that one comparable company trades at an EV/EBITDA multiple significantly above its peers. Upon…
- An analyst builds a 5-year DCF model with projected free cash flows of $20M, $22M, $25M, $28M, and $30M. The terminal…