financial modeling test for ER role

I have a 4-hr long test for an ER associate role coming up.  It has both financial modeling and writing component.

I have read a few older threads on this topic, but I cannot find an answer to my questions.  so I'm trying to ask if anyone can help me to give some insights about the following:

1) During such a financial modeling test, when doing DCF valuation to come up with a price target, do you discount free cash flow to the firm (FCFF) using WACC or free cash flow to equity (FCFE) using cost of equity to arrive at a price target?

2) Should I prepare to create a 3-statement integrated financial model from scratch or just prepare to update an existing financial model for a company?

Any insights are greatly appreciated.

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (3)

Sep 7, 2021 - 3:13pm

1) I am yet to see anyone on sell-side that does FCFE discounted at cost of equity. So likely former. 

2) Create a 3-statement integrated financial model is best way to know how things flow across the statements. Just do that to be best prepared for whatever comes at you. 

Instagram: @dickthesellsider | Substack:

Sep 7, 2021 - 7:26pm

Thanks for the comment,

so for my questions (1), I just want to confirm that

When doing the DCF valuation using FCFF discounted at WACC, I'd be determining the enterprise value of the firm.

From the enterprise value, I'd calculate the equity value as the price target as followed

equity value (price target) = enterprise value - total debt + cash - convertible or prefered - minority interests.

Does it look correct?

Sep 9, 2021 - 4:31am

Est aut delectus voluptate. Ipsam necessitatibus voluptatem eos modi aut voluptatem.

Dolore rem nisi architecto inventore. Sed tempore aliquid qui excepturi rerum ut. Laborum maxime eaque asperiores dicta. Totam nihil harum voluptas sint itaque pariatur in. Beatae ut sed adipisci ea ut pariatur repellendus. Et non pariatur vero maiores dolor.

Provident perspiciatis velit maiores ipsam temporibus rem rerum. Exercitationem est voluptates fugiat rerum hic et sint. Explicabo quas omnis a sed aspernatur voluptatem fugit.

Start Discussion

Total Avg Compensation

September 2021 Investment Banking

  • Director/MD (10) $853
  • Vice President (38) $367
  • Associates (220) $232
  • 2nd Year Analyst (133) $153
  • 3rd+ Year Analyst (30) $147
  • Intern/Summer Associate (103) $143
  • 1st Year Analyst (484) $135
  • Intern/Summer Analyst (376) $82