However does not use standardized method of calculation since it does not use standardized accounting techniques
Other disadvantages of FFO also apply; ignores growth and development of land
Total value of underlying real estate
Relies on prices in private real estate market
Assumed to be an efficient market since there are many buyers and sellers
REITs have a long term tendency to revert back to parity with NAV
NAV = Assets – Liabilities (adjusted for depreciation for REITs)
Closest model to intrinsic stock value
Takes into account both near and long term growth prospects
Almost all determinants of stock boiled down to quantifiable inputs for this model
However, it is only as good as its assumptions (and there are many)
Principle of “garbage in, garbage out”
INSIDERS GUIDE REMEMBER: INTERVIEWING IS HARD AND TAKES PRACTICE
Majoring in Econ/Business with no passion
Believing going to Uchicago is enough
Relying on CAPS
Believing you don’t need a high GPA
Believing you don’t need leadership
Believing that getting an interview is enough
READ WSJ EVERYDAY
KNOW WHAT IS ON YOUR RESUME
WE GO TO A LIBERAL ARTS SCHOOL – IT IS OK IF YOU ARE NOT FAMILIAR WITH FINANCE, IT IS NOT OK TO NOT BE FAMILIAR WITH WORLD EVENTS AND HOW THEY RELATE TO INVESTMENT BANKING
Believing you are SPECIAL
Not being PROACTIVE
This is your life!
DO NOT LIE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
COMMON INTERVIEW QUESTIONS
WALK ME THROUGH YOUR RESUME
WHY DID YOU CHOOSE UNIVERSITY OF CHICAGO?
TELL ME WHERE THE HOUSING MARKET IS HEADED
PITCH A STOCK TO ME
WHAT DO INVESTMENT BANKERS DO?
WALK ME THROUGH A DCF
WHAT’S THE BIGGEST RISK YOU HAVE TAKEN?
WHAT ARE YOU PASSIONATE ABOUT?
What sector are you following and why – and then they ask spinoff questions so just be well read
If there were no college textbooks and every college student had to have a kindle – guess how many kindles would be sold to students at 4 year colleges in 2012 – does the number go up or down the next year
Read a newspaper article on a merger and acquisition and tell me what’s the most important news
Why is gas prices going up but oil prices going down?
MORE INTERVIEW QUESTIONS:
What sectors are you following and why?
How would you invest 100 million dollars
When would you issue Bond vs. Equity – which is cheaper?
Know what industry groups you are interested in and what has been happening in them
What is a Tombstone?
What is BETA?
Provide an example of a situation in which you had multiple competing deadlines – how did you prioritize? Were the deadlines met? What did you do or would have done if you were unable to meet the deadlines?
Why this company?
What motivates you?
Why did you choose your major? ( 1 st phone interview)
Tell me about a moment where you were a problem solver?
What’s the biggest risk you’ve taken?
Know about balance sheet/ income statement/ statement of cashflows and links between them
What commodities would you invest in and why?
What are your SAT scores?
THIS WILL ONLY BE ASKED IF YOU HAVE EVIDENCE ON YOUR RESUME THAT YOU SHOULD KNOW HOW TO DO THIS…
Walk me through a Discounted Cash Flow In order to do a DCF analysis, first we need to project free cash flow for a period of time (say, five years). Free cash flow equals EBIT less taxes plus D&A less capital expenditures less the change in working capital. Note that this measure of free cash flow is unlevered or debt-free. This is because it does not include interest and so is independent of debt and capital structure. Next we need a way to predict the value of the company/assets for the years beyond the projection period (5 years). This is known as the Terminal Value. We can use one of two methods for calculating terminal value, either the Gordon Growth (also called Perpetuity Growth) method or the Terminal Multiple method. To use the Gordon Growth method, we must choose an appropriate rate by which the company can grow forever. This growth rate should be modest, for example, average long-term expected GDP growth or inflation.
DCF Continued/// To calculate terminal value we multiply the last year’s free cash flow (year 5) by 1 plus the chosen growth rate, and then divide by the discount rate less growth rate. The second method, the Terminal Multiple method, is the one that is more often used in banking. Here we take an operating metric for the last projected period (year 5) and multiply it by an appropriate valuation multiple. This most common metric to use is EBITDA. We typically select the appropriate EBITDA multiple by taking what we concluded for our comparable company analysis on a last twelve months (LTM) basis. Now that we have our projections of free cash flows and terminal value, we need to “present value” these at the appropriate discount rate, also known as weighted average cost of capital (WACC). For discussion of calculating the WACC, please read the next topic. Finally, summing up the present value of the projected cash flows and the present value of the terminal value gives us the DCF value. Note that because we used unlevered cash flows and WACC as our discount rate, the DCF value is a representation of Enterprise Value, not Equity Value.