DCF

Free cash flow, WACC, terminal value — building a discounted cash flow from scratch.

1
The DCF, explained
A discounted cash flow values a company by its own future cash flows. The unlevered FCF build, WACC, terminal value, and the sequence and bridge mistakes that trip people up.
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2
Time value of money
A dollar today beats a dollar next year, and that one idea is the engine under every valuation. Present value, discount factors, perpetuities, and why rising rates push valuations down, worked with clean numbers.
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3
Unlevered free cash flow
Unlevered free cash flow is the cash a business generates before any debt payments, so it belongs to every capital provider. The EBIT-based build, why it pairs with WACC, and a clean worked example.
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4
CAPM and the cost of equity
The cost of equity is the return shareholders demand for the risk they take. CAPM builds it from three inputs, risk-free rate plus beta times the equity risk premium, and it feeds straight into WACC and the DCF.
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5
Levered vs. unlevered beta
A company's observed beta is contaminated by its debt. To value a business you strip debt out (unlever) and re-apply your target's own debt (relever). The two formulas, why it matters, and the errors interviewers fish for.
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6
The market risk premium
The extra return investors demand for holding stocks over risk-free bonds. It's the price of risk in the whole market, the same number for every company you value that day, scaled by beta. Where it comes from, why it runs 5-7%, and how not to mangle it.
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7
WACC, explained
WACC is the blended return debt and equity holders demand, and it's the discount rate for unlevered cash flows. The formula, why you use market weights, and the after-tax cost of debt.
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8
Terminal value
Terminal value captures everything past your forecast window and usually drives most of a DCF. The two methods (Gordon growth and exit multiple), why you need WACC first, and why you still discount it back.
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9
DCF conventions and the errors that sink you
The DCF logic is easy. The conventions and the sequence are where candidates lose the offer, so here are the mid-year convention, stub periods, sensitivity tables, and the mistakes that read as sloppy.
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10
The yield curve and interest rates
A bond's yield is the return you earn holding it to maturity, and plotting yields against maturity gives the yield curve. Here is how it slopes, what inverts it, and why every deal reads it.
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11
Terminal value (Advanced)
The two terminal value methods have to agree, and making them agree is the actual interview test. Implied perpetuity growth, implied exit multiple, normalizing the terminal year, and why terminal value being 70% of your DCF is not automatically a problem.
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12
WACC and beta (Advanced)
Unlevering and relevering beta correctly, why you use a target capital structure rather than today's, and the adjustments interviewers use to probe whether you understand cost of capital or just memorized the formula.
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