Interview next Tuesday (5/13)

WSO AMers,

I could really use your help preparing for an upcoming interview. The challenge here is that I'm jumping industries from commercial banking to Asset Management so the relevant techniques I learned in school are a little rusty.

The job description specifically mentioned DCF, APV, and relative valuation techniques are necessary. So, I'm planning to do a DCF and enterprise valuation. I need help with the DCF portion.

My plan was to value a company's stock using the S&P cash flow forecasting model for a stock trading below 20x 7-year earnings average. I just want to show them that I know the basic mechanics whether right or wrong or most realistic assumptions (e.g., growth assumptions, efficiency assumptions, etc). The stock I pick will be based on 7-year earnings average, but I will only forecast 5 years forward.

So I would make my assumptions in one page, populate my proforma cash flow, and use the CAPM (Beta based on industry average) to discount back to the present value. My terminal value would use a stabilized cash flow, growth rate for the market they operate in, and cost of equity I have been using.

Have I missed anything or are there any other important considerations I should make in order to do this? Again, I'm not trying to illustrate that I know how to forecast growth rates or future economic conditions but just that I know how to model it once I talk those assumptions out with other senior managers.

Any help or resource references are appreciated! I've already checked out the Investopedia University DCF instructional. I'm also ready Aswath D's investment valuation, but I just started that. He gets into some crazy stuff that I probably will not be incorporating into the model like the reinvestment ratio, etc. I will make some general assumptions regarding those figures.