Quantile Capital: Review This DCF Before It Goes to the IC
Finance
medium40 min0 submissionsMcKinsey
Scenario
An analyst at Quantile Capital has produced the valuation below for the investment committee. It is due to be presented tomorrow. Your job is to review it, not to rebuild it.
The analyst's model
| Input | Value |
|---|---|
| Year-5 free cash flow | £52 M |
| WACC | 12% |
| Terminal growth rate | 14% |
| Terminal value | £59,280 M |
| Forecast horizon | 5 years |
| Mid-year convention | Not applied |
| Net debt | Deducted at book value |
The analyst's note reads: "Terminal value dominates the valuation at roughly 95% of enterprise value, which is normal for a growth business. The model shows substantial upside and I recommend we proceed."
The IC will approve based on this number unless someone objects.
Supporting data
model
- wacc pct
- 12
- year 5 fcf
- 52
- mid year convention
- false
- terminal growth pct
- 14
- stated terminal value
- 59280
derived hints
- defensible growth pct
- 3
- corrected terminal value
- 595
Your task
Review the model. Your answer should provide:
- Analysis — identify the error or errors, and say which one actually matters.
- Risks — what happens if this goes to the committee uncorrected.
- Recommendation — the corrected figure, computed, and what you would tell the analyst.
State any assumptions you make.
Ready to move forward? Up next: Marlow Chemicals: Pressure-Test This RecommendationNext question
How you'll be graded
100 points, 60% to pass.
- explanation20
- residual review15
- error identification35
- quantitative correction30
Hint
Reveal suggested structure
Gordon growth constraint (g < WACC); recompute TV; sanity-check TV share of EV