IB Technicals - DCF
I am currently working my way through the IB technicals in preparation for next cycle's interviews. The first one on the list is DCF, or the "Walk me through a DCF", and from my research, this is what I have so far.
I purposefully go in great detail, this was to make sure I understood the concept, but I would not be surprised if there are some errors, so please do correct me if you see any.
Also, any feedback is greatly appreciated, I am writing this myself so it would go a long way.
math is good, except when backsolving to get to equity value, it'd be Eq Val = Enterprise value - debt - preferred stock - minority interest + cash (your formula too simple for interviews)
keep in mind the "share price" that you get in the end is the implied share price. make sure to distinguish that in an interview. other than that, this is good work
EBIT is not the same as NOPAT. The word you're looking for is EBIAT. Your WACC formula is also wrong. there needs to be a * (1-tax rate) after Rd to show the tax shield you get from the interest paid on debt. Also, cost of preferred * % preferred stock in company would usually be in wacc formula as well.
also, your cost of debt is not 10 year treasury, that would be the number you'd use for the risk free rate of return in CapM. think about cost of debt intuitively as just being the cost of interest paid on your debt- don't overcomplicate it
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