Walk me through a DCF.

A DCF values a company based on the present value of its future cash flows. I'd start by projecting the company's free cash flow for five to ten years. That's unlevered free cash flow, so I take EBIT, multiply by one minus the tax rate, add back depreciation and amortization, then subtract capital expenditures and the increase in net working capital. Then I discount those cash flows back to today using WACC. Next is the terminal value. I can use the perpetuity growth method, which assumes the final year's cash flow grows at a low rate forever, or apply an exit multiple to the final year's EBITDA. I discount the terminal value back to today as well, and adding it to the discounted cash flows gives me enterprise value. To get to equity value I subtract net debt. Dividing by diluted shares gives me an implied share price.

A DCF values a company based on the present value of its future cash flows. There are two parts, the cash flows in a forecast period and a terminal value for everything after it. I'd start by projecting the company's free cash flow for five to ten years. That's unlevered free cash flow, so I take EBIT, multiply by one minus the tax rate, add back depreciation and amortization, then subtract capital expenditures and the increase in net working capital. It's unlevered because it's the cash available to all investors, before any interest payments. Then I discount those cash flows back to today using WACC. WACC is the right rate because it blends the returns that both debt and equity investors require, which matches unlevered cash flows. Next is the terminal value. I can use the perpetuity growth method, which assumes the final year's cash flow grows at a low rate forever, or apply an exit multiple to the final year's EBITDA. I discount the terminal value back to today as well, and adding it to the discounted cash flows gives me enterprise value. To get to equity value I subtract net debt. I'd also subtract other claims like preferred stock and noncontrolling interest. Dividing by diluted shares gives me an implied share price. As a check, I'd look at how much of the value comes from the terminal value. It's often more than half, so I'd run sensitivities on the discount rate and the growth rate, and compare the result with trading comps.