Sample report · Technical · valuation
Walk me through a DCF.
This is what you get after every mock. It's a real report from Soreno, written for a sample answer we recorded, not a user's.
77 / 100
Good
The banking rubric
Summary
You demonstrated a solid understanding of DCF mechanics, CAPM, and why equity investors require a higher return than lenders. After one targeted follow-up, you correctly matched unlevered free cash flow with WACC and completed the enterprise-value-to-equity-value bridge without the interviewer supplying the answer. The main technical gaps were omitting the debt tax shield and market-value weighting in WACC, and leaving terminal-value calculation and discounting insufficiently explicit. Your answers were generally easy to follow, but the opening walkthrough would be stronger with less introductory commentary and a more decisive finish.
Technical accuracy · 36/50
You correctly described the core free-cash-flow calculation, CAPM, the enterprise-to-equity bridge, and equity's higher required return; your correction from cost of equity to WACC after one question earns credit. However, your WACC formula omitted the after-tax adjustment to debt and did not specify market-value weights, while the DCF explanation mentioned terminal value without explaining its calculation or explicitly discounting it.
Structure · 16/20
The walkthrough broadly followed the valuation sequence from projections through discounting and terminal value, and the WACC explanation was logically ordered. The initial ending—'I think you can get a share price from that as well'—did not complete the valuation bridge, although you supplied that bridge clearly in the follow-up.
Concision · 12/15
The WACC and equity-risk answers were appropriately brief, and there is no evidence that the interviewer had to interrupt an excessively long answer. The opening walkthrough spent unnecessary time comparing valuation methods, explaining time value of money, and discussing sensitivity before fully landing on value per share.
Poise · 13/15
You handled the discount-rate challenge constructively, immediately correcting the answer and explaining the cash-flow-to-discount-rate match rather than merely changing terminology. The initial uncertainty around reaching a share price weakened the finish, but the transcript shows neither freezing nor defensiveness.
What worked
“it should be WACC, because unlevered free cash flow is before interest, so it's for all the investors, debt and equity. Cost of equity would be if you were doing levered free cash flow.”
You correctly resolved the discount-rate mismatch after one follow-up and explained the underlying principle: the discount rate must match the investors entitled to the cash flow. This demonstrates understanding beyond simply recalling that a DCF uses WACC. The interviewer did not supply the answer, so your correction earns credit.
“And then the sum gives you enterprise value, and you'd take away the net debt to get equity value and divide by the shares.”
You completed the valuation bridge in the follow-up, correctly distinguishing enterprise value from equity value and explaining how to reach a per-share valuation. This is an essential endpoint in a banking DCF walkthrough, and your explanation was concise and logically ordered.
What to fix
“You take the percentage of equity times the cost of equity and the percentage of debt times the cost of debt and add them.”
The WACC formula needs the after-tax cost of debt, not simply the cost of debt. Without multiplying the debt component by one minus the tax rate, you omit the interest tax shield and generally overstate WACC for a tax-paying company. Your later explanation of why equity is riskier than debt is correct, but it does not address this missing adjustment. Say instead: I calculate WACC as the equity weight times the cost of equity plus the debt weight times the cost of debt times one minus the tax rate, reflecting the tax deductibility of interest.
“And yeah, the weights you'd take from the capital structure.”
This leaves the basis of the capital structure weights ambiguous. In a banking technical answer, explicitly specifying market values distinguishes the correct valuation approach from using accounting book values. Your CAPM explanation provides the cost of equity, but the weighting convention is a separate part of calculating WACC accurately. Say instead: I use market-value weights, with equity weighted by its market value divided by the total market value of debt and equity, and debt weighted on the same basis.
Your next steps
- 1. Make the WACC formula automatic. You correctly explained CAPM and why equity investors require a higher return. Build on that by drilling the complete formula: WACC = E/(D+E) × cost of equity + D/(D+E) × cost of debt × (1−tax rate), using market-value weights. Explain that the debt adjustment reflects interest deductibility, and estimate debt cost from current borrowing rates rather than historical coupons. Practice stating the formula and explaining the weights and tax shield in 30 seconds.
- 2. Deliver the complete DCF sequence on the first pass. Your correction correctly linked unlevered cash flow to WACC and completed the enterprise-to-equity bridge. Make those points part of a rehearsed 60–90-second walkthrough: forecast unlevered free cash flow; calculate terminal value using perpetual growth or an exit multiple; discount both the forecast cash flows and terminal value at WACC; sum to enterprise value; subtract net debt and other non-equity claims; divide by diluted shares. State the cash-flow formula precisely, including subtracting increases in net working capital. Record yourself and check that every step appears before adding optional discussion of valuation methods or assumption sensitivity.
The interview, out loud (9 turns)
Interviewer: Hi, I'm Ryan, an associate in the M&A group. This is a quick technical round, about twelve minutes, and we'll stay on DCF. Let's jump in. Walk me through a DCF.
Candidate: Yeah, so a DCF, discounted cash flow, is basically one of the main valuation methods, along with comps and precedents, and it's an intrinsic valuation, so it's looking at the company itself and not the market. So basically what you do is you project the company's cash flows into the future, and usually that's like five years, and you'd base it on, you know, revenue growth, margins, what management thinks, maybe what equity research is saying. And then from the cash flows, so you have free cash flow, which is like the cash the business actually generates, so net income, sorry, not net income, it's more like EBIT after tax, plus depreciation, minus capex, and working capital changes. And then you discount those back. And the reason you discount is time value of money, a dollar today is worth more than a dollar in five years. So you discount them at the cost of equity, and then you also have the terminal value, because the company keeps going, and that's usually a big part of the value. And then you add it all up and that's the value of the company. And then I think you can get a share price from that as well. So yeah, it's a pretty flexible method, but it's very sensitive to the assumptions, which is kind of the main criticism of it.
Interviewer: Which discount rate would you use for unlevered free cash flow?
Candidate: Oh, right, sorry, it should be WACC, because unlevered free cash flow is before interest, so it's for all the investors, debt and equity. Cost of equity would be if you were doing levered free cash flow. And then the sum gives you enterprise value, and you'd take away the net debt to get equity value and divide by the shares.
Interviewer: How do you calculate WACC?
Candidate: So WACC is the weighted average cost of capital, so it's the blend of what it costs the company to raise money from equity and from debt. You take the percentage of equity times the cost of equity and the percentage of debt times the cost of debt and add them. Cost of equity is from CAPM, so the risk-free rate, like the ten-year Treasury, plus beta times the market premium, and beta is how volatile the stock is compared to the market. And cost of debt is basically the interest rate the company pays, so you could look at its bonds or its loans. And yeah, the weights you'd take from the capital structure. I think that's the main thing.
Interviewer: Why is the cost of equity higher than the cost of debt?
Candidate: Because equity is riskier for the investor, they're last in line if the company goes bankrupt and the returns aren't guaranteed, so they want a higher return for that.
Interviewer: Okay, that's what we have time for today.
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