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Discounted Cash Flow (DCF)

Build a DCF from an operating forecast: unlevered free cash flow, WACC from CAPM, discount factors (end-of-year and mid-year), terminal value on BOTH an exit multiple and Gordon growth, an implied share price under each, and a two-way WACC × exit-multiple sensitivity table. Every line must be linked, not pasted.

IB · Advanced · about 100 minutes · 27 guided steps

Lesson outline

Unlevered Free Cash Flow

  1. Step 1: Unlevered Free Cash Flow

WACC

  1. Step 2: Cost of Equity
  2. Step 3: After-Tax Cost of Debt
  3. Step 4: Equity Weight
  4. Step 5: Debt Weight
  5. Step 6: WACC

Discounting

  1. Step 7: Discount Factor
  2. Step 8: PV of Unlevered FCF

Valuation — Both Terminal Methods

  1. Step 9: Sum of PV of FCF
  2. Step 10: Terminal Value — Exit Multiple
  3. Step 11: PV of Terminal Value — Exit Multiple
  4. Step 12: Enterprise Value — Exit Multiple
  5. Step 13: Terminal Value — Gordon Growth
  6. Step 14: PV of Terminal Value — Gordon Growth
  7. Step 15: Enterprise Value — Gordon Growth
  8. Step 16: Gordon TV — Implied Exit Multiple

Enterprise Value → Equity → Per Share

  1. Step 17: Net Debt
  2. Step 18: Equity Value — Exit Multiple
  3. Step 19: Implied Share Price — Exit Multiple
  4. Step 20: Equity Value — Gordon Growth
  5. Step 21: Implied Share Price — Gordon Growth

Mid-Year Convention

  1. Step 22: Mid-Year Discount Factor
  2. Step 23: Enterprise Value — Mid-Year Convention

Sensitivity Analysis

  1. Step 24: Sensitivity — WACC Axis
  2. Step 25: Sensitivity — Exit Multiple Axis
  3. Step 26: Sensitivity — PV of Forecast UFCF by WACC
  4. Step 27: Sensitivity — Implied Share Price Grid