Valuation Interview Questions (DCF, comps, multiples)

Model answer

Select a peer set of similar public companies by industry, size, growth and margins, pull their market and financial data, and compute multiples such as EV/EBITDA, EV/revenue and P/E. Take the median and quartiles and apply them to the target's metric to imply a value, adjusting for differences in growth and profitability. It reflects current market sentiment.

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.

Model answer

EV/EBITDA is capital-structure neutral, since both numerator and denominator are pre-financing, and it is pre-tax and pre-D&A, so it compares operating value across companies with different leverage, tax and depreciation policies. P/E is distorted by capital structure and one-time items below EBIT.

Model answer

Same industry and business model, with similar size, growth, margins, geography and capital intensity. Tighter is better, since a few truly comparable names beat a long noisy list. Screen out outliers and companies in special situations like pending M&A or distress that distort multiples.