Spreadsheet-Type Questions

CFA Level II
#1

Hello Good Afternoon,

I have a question to those who maybe already passed the level II or at least attended it. Before I ask I just want to disclaim that I am aware of the fact that you cannot share your knowledge about actual exams and I am not expected it.

That said, I am currently dealing with some practice problems from the curriculum in topic DCF, particullary company valuation based on FCFE, FCFF. There are practice problems that are reasonably solved only using spreadsheet. I don’t imagine solving this type of question using a simple calculator. Of course, having a piece of paper and mentioned calculator is enough to solve it, but you risk with a huge space for mistake, not to mention time needed to complete the task. So here’s my question, shall I expect this type of calculations on the actual exam?

Example of the problem would be: company XYZ expects to increase sales by 5% for four years, and then perpetually by 3%. Capex will be 10% of sales declining for four years linearly until 6%. Company will finance it with 20% debt. Its just an example so you know what type of quetion I mean.

Thanks for making this clear.

#2

This is absolutely a testable question… in fact, i would expect that type of question on the exam.

#3

Well, I guess it depends on the question right? Since he did not specify anything…

OP, if you’re asking whether you could be asked for the value of equity given all that, I’d say no… But I think we can pretty much expect this type of information and then calculate NPV of FCFF in year 3.

Maybe someone could clarify this… Cheers mate

#4

The NPV of all the cash flows is the equity value, that doesn’t make it any easier.

#5

Thanks for your input guys. I am still struggling with equity readings and I really don’t enjoy it. Anyway, I have another question for you level II Candidates. When you study methods of calculating FCFE, FCFF (from NI, CFO, EBIT, EBITDA), do you try to find any logic behind these equations or you just learn it by hard? I mean, it is in total 8 very similar equations and I am pretty sure you need to know all of them. It’s just so easy to confuse one with another. What is your approach to remember all of them in most efficient way?

#6

The methods should all be the same.

You could use the indirect method, or the direct one in calculating FCFF/FCFE. Know them both.

If you’re working as almost any financial analyst job, you would be expected to know them through job exposure.

#7

you will be sure to get a two stage growth question. you can also be confident it will not be a plug and chug.

using the exam book as scrap is an option for when you need to write out some yearly cashlfows prior to dicounting.