Module II· DCF — Mechanics & FCFAdvanced
Question
What are the five most common DCF mistakes you must avoid in an interview?
Answer
- Taxes on EBT instead of EBIT → double tax shield.
- Forgetting the mid-year convention → understates equity value by ~5%.
- Terminal-year FCF not normalized (capex < D&A) → TV overstated.
- Lease liabilities not added to net debt (post-IFRS 16) → overstates equity.
- Growth rate g > WACC in the terminal → mathematically absurd (negative denominator).
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Pitch tip
If an MD asks 'Where could your DCF be wrong?', list these five points — it shows structural understanding. Bonus: 'I also check the implied exit multiple — it shouldn't be above the trading multiple, otherwise there's a hidden multiple-expansion element.'