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Quizzes > Business & Finance

Business Valuation Quiz: Test DCF, Comparables, and Cash Flow

Quick, free valuation quiz to check your finance skills. Instant results.

Editorial: Review CompletedCreated By: Christopher LeeUpdated Aug 26, 2025
Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art illustrating a quiz on Business Valuation

This Business Valuation Quiz helps you apply DCF, comparables, and cash flow basics to estimate a company's worth. Get instant answers, see explanations, and spot gaps before interviews or exams. For broader practice, try our corporate finance quiz, a financial management quiz, or a business finance assessment.

What does DCF stand for in valuation?
Discounted Cash Flow
Debt Cash Financing
Direct Cash Flow
Dynamic Cost Factor
DCF stands for Discounted Cash Flow, a method that values a business by estimating its future cash flows and discounting them to present value. It is a fundamental intrinsic valuation technique.
Which valuation method uses multiples from similar companies?
Asset-based valuation
Dividend discount model
Comparable company analysis
Replacement cost method
Comparable company analysis is a relative valuation method that uses valuation multiples from peer companies to estimate value. It relies on market data rather than forecasting detailed cash flows.
Enterprise value equals equity value plus which of the following?
Retained earnings
Shareholders' equity
Total assets
Debt minus cash
Enterprise value is calculated as equity value plus net debt (debt minus cash). This adjustment accounts for the firm's capital structure when valuing the entire enterprise.
EBITDA excludes which of the following?
Interest expense
Sales revenue
Cost of goods sold
Depreciation and amortization
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It excludes depreciation and amortization to focus on operating cash flow.
Which rate is commonly used to discount a firm's free cash flows?
Dividend yield
Prime lending rate
Weighted average cost of capital
Risk-free rate
The weighted average cost of capital (WACC) represents the firm's blended cost of debt and equity and is the standard discount rate for free cash flow valuation.
Which cash flow is used to determine enterprise value in a DCF?
Unlevered free cash flow
Net income
Levered free cash flow
Operating cash flow
Unlevered free cash flow is used in DCF to value the entire firm, as it reflects cash available to all providers of capital before interest payments. It isolates operations from capital structure effects.
If a company has an EBIT of $10 million and an EV/EBIT multiple of 8x, its enterprise value is:
$80 million
$1.25 billion
$18 million
$2 million
Enterprise value equals the EBIT multiplied by the EV/EBIT multiple. Here, $10 million - 8 = $80 million.
What is the primary purpose of performing sensitivity analysis in a DCF model?
Assess impact of changes in key assumptions
Replace terminal value estimate
Create a single valuation figure
Forecast detailed cash flows
Sensitivity analysis tests how the valuation changes when key inputs (like discount rate or growth) vary. This highlights the valuation drivers and potential risks.
In relative valuation, the P/E ratio compares which of the following?
Book value to shares outstanding
Enterprise value to EBITDA
Market price per share to earnings per share
Revenue to net income
The P/E ratio is the market price per share divided by earnings per share. It indicates how much investors are willing to pay for each dollar of earnings.
How are capital expenditures treated when calculating free cash flow?
Subtracted from operating cash flows
Ignored in free cash flow
Offset by depreciation expense
Added to operating cash flows
Free cash flow deducts capital expenditures from operating cash flow because capex represents cash spent to maintain or grow the asset base.
Which assumption is typically used for the terminal growth rate in a DCF model?
Slightly below long-term GDP growth
Above historical revenue growth
Equal to WACC
Negative in stable industries
Terminal growth rates are usually modest and aligned with long-term economic growth (e.g., slightly below GDP) to ensure realistic perpetual growth assumptions.
If a company increases its financial leverage, what typically happens to its levered beta?
It remains unchanged
It increases
It becomes negative
It decreases
Levered beta rises with higher debt because increased financial leverage amplifies equity risk relative to the market.
What does beta measure in the CAPM framework?
Credit risk of the firm
Systematic risk relative to the market
Unsystematic risk of a single asset
Total volatility of returns
Beta measures an asset's sensitivity to market movements, capturing its systematic risk under CAPM. It excludes idiosyncratic risk.
What does the EV/EBITDA multiple represent?
Debt relative to EBITDA
Revenue relative to EBITDA
Equity value relative to EBITDA
How many times a company's EBITDA the market values the enterprise
EV/EBITDA expresses enterprise value as a multiple of operating earnings (EBITDA), indicating how the market values those earnings.
An increase in net working capital has what effect on free cash flow?
Reduces free cash flow
Has no effect on free cash flow
Increases net income
Increases free cash flow
An increase in net working capital ties up cash in operations, which reduces the free cash flow available to investors.
Given a capital structure of 60% equity at 10% cost and 40% debt at 5% after-tax cost, what is the WACC?
6%
8%
9%
7%
WACC = 0.6-10% + 0.4-5% = 6% + 2% = 8%. It weights each capital component by its market value and cost.
According to the Hamada equation, how is levered beta (βL) calculated from unlevered beta (βU), debt (D), equity (E), and tax rate (T)?
βL = βU - (E/D)
βL = βU - [1 + (1 - T) - (D/E)]
βL = βU / [1 + (D/E)]
βL = βU + T - (D/E)
The Hamada equation adjusts unlevered beta for financial leverage: βL = βU - [1 + (1 - tax rate) - (D/E)], reflecting the tax shield on debt.
Under IFRS 16, how should operating leases be treated in free cash flow calculations?
Lease expenses are reclassified as depreciation and interest
Leases are ignored in cash flow
Lease payments remain an operating expense
Full lease payments are added back to EBITDA
IFRS 16 requires lessees to capitalize operating leases, recognizing depreciation and interest instead of an operating lease expense, impacting free cash flow classification.
When valuing a firm in a high-risk country, which adjustment should be made to the discount rate?
Subtract the sovereign default spread
Use only the risk-free rate
Apply a lower beta
Add a country risk premium
A country risk premium compensates investors for additional political and economic risks in higher-risk jurisdictions, raising the discount rate appropriately.
In a DCF model using the Gordon Growth method for terminal value, which formula is correct?
TV = FCFₙ₊₝ / (WACC - g)
TV = FCFₙ - (1 - g) / WACC
TV = FCFₙ / (WACC + g)
TV = (FCFₙ - g) / (WACC - g)
The Gordon Growth formula for terminal value uses next period's cash flow (FCFₙ₊₝) divided by (WACC minus perpetual growth rate g) to estimate perpetual value.
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Learning Outcomes

  1. Analyse key valuation methods such as DCF and comparables
  2. Evaluate financial metrics to determine enterprise value
  3. Identify factors affecting market and intrinsic value
  4. Apply valuation models to real-world business scenarios
  5. Demonstrate insight into adjusting cash flows and discount rates

Cheat Sheet

  1. Discounted Cash Flow (DCF) Method - Imagine time-traveling with your dollars! DCF brings future free cash flows back to today's value using an appropriate discount rate, so you know what tomorrow's profits are really worth right now. Master projecting cash flows and picking the right rate for a blockbuster valuation.
  2. Comparables (Comps) Method - Think of valuing a company like comparing superhero stats - match financial metrics to similar businesses using P/E or EV/EBITDA ratios. By selecting peers with similar growth and revenue drivers, you'll benchmark value like a pro analyst. It's relative valuation made fun and insightful.
  3. Enterprise Value (EV) - EV is the all-in one price tag of a company, adding debt, equity, and subtracting cash. It gives you the full takeover cost, not just the market cap. Use it to compare apples-to-apples across businesses of different capital structures.
  4. Weighted Average Cost of Capital (WACC) - Picture a smoothie blending debt and equity costs - WACC is that blended rate, reflecting how much it really costs to fund a business. It serves as the discount rate in DCF, making sure future cash flows are risk-adjusted. Nail WACC and your valuations stay on target.
  5. Terminal Value - Your DCF model's grand finale, capturing value beyond the forecast period. Choose between the perpetuity growth method or exit multiple method to estimate this "everlasting" slice of value. Terminal Value often drives most of your valuation, so treat it like the star of the show.
  6. Normalized Earnings - One-off events can skew your view, so strip out unusual gains or losses to reveal sustainable profits. Normalizing earnings is like cleaning your glasses before analyzing financial performance. This gives you a clearer picture of what the company consistently generates year after year.
  7. Market Analysis - Dive into economic trends, industry shifts, and investor sentiment to see how external forces shape valuations. Think of it as gathering market gossip - knowing the buzz helps you adjust your models for real-world twists. Stay up to date and your valuations will stay sharp.
  8. Comparable Company Analysis - Handpick a squad of companies with similar size, growth rates, and operational traits to boost your Comps accuracy. By matching apples to apples, your P/E or EV/EBITDA multiples become much more meaningful. Precision in your peer group selection is the secret sauce.
  9. Valuation Limitations - No method is perfect: DCF relies on projections and assumptions, while Comps depend on peer quality. Be aware of biases and uncertainties to critically review your results. Understanding these pitfalls turns you into a savvy valuation detective.
  10. Case Study Practice - Level up by applying valuation models to real-world scenarios - practice with case studies to test your skills under different business contexts. The more hands-on examples you solve, the more intuitive your financial wizardry becomes. Ready to impress on exam day?
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