Simple DCF Model

Overview In this exercise, you’ll build a simplified Discounted Cash Flow (DCF) model. Using the provided assumptions, you will forecast future cash flows, calculate the appropriate discount rate, estimate terminal value, and derive the company’s intrinsic equity value and implied share price. The goal is to understand how expected future cash flows are translated into today’s value using time value of money principles. Learning Goals Understand the core logic of Discounted Cash Flow (DCF) valuation and how expected future cash flows determine intrinsic value. Learn how operating assumptions are translated into projected Free Cash Flow over a multi-year forecast period. Develop intuition for the role of the discount rate by applying WACC to reflect risk and the time value of money. Compare two commonly used approaches to estimating terminal value— the Perpetual Growth method and the Exit Multiple method—and understand when each is most appropriate. See how enterprise value is translated into equity value and an implied share price in practical valuation analysis. Key Concepts Unlevered Free Cash Flow (UFCF): Cash generated by the business before financing costs, available to all capital providers. Cost of Equity: The required return for equity investors, typically estimated using CAPM. WACC: The blended cost of debt and equity used as the discount rate in a DCF. Terminal Value (Perpetual Growth): Assumes the company grows at a constant rate forever. Terminal Value (Exit Multiple): Estimates value based on a valuation multiple applied in the terminal year. Enterprise Value (EV): The total value of the firm’s operations, independent of capital structure. Equity Value & Share Price: Deriving shareholders’ value after adjusting for cash, debt, and shares outstanding.

Practice Simple DCF Model with interactive Excel modeling exercises in our DCF Modeling module.

This hands-on modeling exercise helps you master Simple DCF Model through real-world Excel practice and financial modeling techniques.