DCF Interview Questions (with Model Answers)

Free sample from the Deskcraft question bank

The DCF is the most-tested valuation method in investment banking interviews. These are real questions from the Deskcraft bank — the same ones our drills serve — covering the full chain: unlevered free cash flow, discount rate, terminal value and the bridge to equity value. The first answers are open; the rest are part of the full bank.

1. How do you calculate unlevered free cash flow?

Model answer

Start with EBIT and tax it (EBIT times one minus tax) to get NOPAT, add back non-cash D&A, subtract capex, and subtract the increase in net working capital. It is unlevered because it is before interest, representing cash available to all capital providers, both debt and equity.

2. What is WACC and what is the formula?

Model answer

It is the blended required return of all capital providers: WACC equals equity weight times cost of equity plus debt weight times after-tax cost of debt. It is the discount rate for unlevered free cash flow because those cash flows go to both debt and equity holders, and the weights use market values at a target capital structure.

3. How do you get from enterprise value to equity value per share in a DCF?

Model answer

Subtract net debt, plus any preferred stock and minority interest, from enterprise value to reach equity value, then divide by the fully diluted shares outstanding to get value per share.

4. If a company is entirely equity-financed, what is its WACC?

Model answer

Simply its cost of equity, because there is no debt weight. With no leverage the unlevered cost of equity equals WACC.