"Your DCF valuation of $100, a Discount Rate of 10%, and a Tax Rate of 25%. If you overestimated EBIT by $4 in Year 4 of your DCF, how does this effect your resulting NPV?"
Could someone plz help me figure out how to answer this technical question (Without a calculator)? Got asked this question over a networking call and completely shit myself
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Unless I'm mistaken, it'll be less 3 dollars discounted back from Year 4, and could impact later cash flows as well if this decrease in EBIT was revenue linked, and your cost as % of rev assumptions would probably need to be tweaked too
EBIT in YR 4 changes by $4. You gotta think what does this impact?
FCF = EBIT(1-T) +- other stuff
Year 4 FCF = Δ4(1-25%) = Δ3/(1+.1)^4
Don’t know if you can do that without a calculator though
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