IB INTERVIEW FOUNDATIONS
Discounted cash flow
Match the cash flow to the discount rate, and get the timing right.
A DCF is a valuation framework built on assumptions about cash generation, reinvestment, risk and terminal economics. The arithmetic is only one part. Unlevered cash flow discounted at WACC values operations; levered cash flow requires a consistent equity approach.
Ask yourself: What assumptions explain most of the value—and what evidence supports them?
Put it into practice
Practise UFCF before terminal value and WACC. Move to the decision case to test sensitivity and bidding judgment.
Beyond the calculation
State assumptions before calculating. Explain the result in plain English, then identify what information could change your conclusion. A numerical match alone does not show that your reasoning is sound.