Answers / M&A Advisory

Walk me through a DCF.

A core M&A Advisory interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.

THE SHORT ANSWER

Project FCF for 5-7 years (revenue, margins, capex, NWC). Calculate terminal value via Gordon Growth or exit multiple. Discount all flows at WACC. Sum = EV. Subtract net debt = Equity Value. Terminal value is 60-80% of total — always sensitivity-test WACC (7-11%) and terminal growth (0.5-2.5%).

WHAT INTERVIEWERS LISTEN FOR

  • ✓Project free cash flows
  • ✓Calculate terminal value
  • ✓Discount at WACC
  • ✓Sum to enterprise value
  • ✓Sensitivity analysis

COMMON MISTAKES

  • ✗Ignoring net debt adjustment
  • ✗Using wrong discount rate
  • ✗Terminal value dominates without testing

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