General General
Back to overview
Case by
PrepLounge

DCF Analysis at CloudCore Inc.

Difficulty: Intermediate
Interviewer-led
5.0
< 100 Ratings
Times solved: 500+

Case Prompt:

You’re working on a DCF valuation for CloudCore Inc., a publicly traded cloud computing company. You’ve built a standard unlevered DCF model using a WACC of 10% and based on your 5-year forecast, the Enterprise Value (EV) currently comes out to $200 million.

Practice makes the difference
Practicing alone helps – with a partner it’s even better. Solve this case in a realistic mock interview.
Schedule on Meeting Board

1) Planned Data Center Investment

Partway through the project, CloudCore announces plans to build a new data center in Year 4, costing $100 million in cash, without any debt or lease financing. The company expects the investment to support future growth, but no additional revenue or cost savings will show up in the 5-year forecast.

How should you adjust your DCF model to reflect the planned data center investment?

Show solution Hide solution

What is the impact of this adjustment on the company’s Enterprise Value?

Show solution Hide solution

2) Convertible Bonds in the Capital Structure

As you refine your WACC and move toward calculating per-share value, you review CloudCore’s capital structure. In addition to $100 million in standard debt, the company has:

  • $50 million in convertible bonds with a conversion price of $10/share
  • The current share price is $15
  • The company has 20 million basic shares outstanding
  • No options or warrants are outstanding
  • $10 million in cash

How should you treat convertible debt?

Show solution Hide solution

Calculate the company’s Equity Value and per-share price based on your DCF.

Show solution Hide solution

In more complex cases, why does calculating the per-share value become circular, and how does Excel handle this?

Show solution Hide solution

3) Timing of Cash Flows

Just before you finalize your report, a senior colleague challenges one of your modeling assumptions: “Are you assuming the company generates all its cash at the end of each year?”

Why might you consider applying the mid-year convention in this DCF?

Show solution Hide solution

What discount periods would you use under the mid-year convention if your DCF starts with a stub period (for example, Q4 of Year 1)?

Show solution Hide solution
Practice This Case With Peers Who Are Currently Looking for Interview Partners.
Do you have questions on this case?
Ask our community and receive answers and tips directly from our experts.
Ask a question Ask a question
Related Case Interview Basics Article
Valuation Cases
Types of Cases
Understanding how to determine a company's value is a crucial skill in strategy consultingstructured approach to valuation is essential. While full-scale valuation analyses are rare in case interviews, you may still be asked questions like, "How much would you pay for company XY?" or "Is this offered price reasonable?" Let's take a closer look on how to approach valuation in a case interview!
To the article
Practice makes the difference
Practicing alone helps – with a partner it’s even better. Solve this case in a realistic mock interview.
Add invitation
Do you have questions on this case?
Ask our community and receive answers and tips directly from our experts.
Ask a question Ask a question