IB Technicals 4: The DCF

Walk me through a DCF is one of the most repeated questions in a banking interview, and the four step answer takes about sixty seconds. Delivering it is half the work. The other half is the follow-ups, because that is where the interviewer finds out whether you understand it or memorized it. Why free cash flow and not net income. Why WACC and not the cost of equity. Why the terminal value is sixty to eighty percent of the answer. What happens to the whole thing when interest rates rise. We build it from the pieces the first three sessions put down. Project unlevered free cash flow, calculate a terminal value two ways, discount at WACC, bridge from enterprise value to a share price. Then the follow-ups banks actually ask, including the two that sound like accounting questions and are really DCF questions. What we'll cover: - The four step walkthrough, and where to slow down on purpose - Why you discount free cash flow and not earnings, and the formula from EBIT - WACC, and why unlevered cash flows have to be discounted at a blended rate - Terminal value both ways, why it drives most of the answer, and why growth can never exceed WACC - When a DCF is the wrong tool - D&A goes up by $10, and interest rates rise. What happens to your valuation? Want to run this in front of someone before it counts? I run a 90-minute mock interview, a full simulation and then rapid-fire technicals on whatever broke. Book a free 15-minute intro to see if it is a good fit. Part 4 of IB Technicals, a six part run on Tuesdays and Thursdays. Each night covers how the concept works and, more importantly, how to actually answer the questions on it, with the stories and details behind them. Each one stands alone, so jump in anywhere. I'm the founder of OFFERGOBLIN and ex-Centerview tech.