FINM3005 Corporate Valuation
The Complete Exam Bible · S1 2026FINM3005 Overview
- Australian National University
- S1 2026
- 7 chapters
- Finance
Corporate Valuation (FINM3005/FINM6005, “Applied Valuation”) teaches you to value a company the way a junior equity analyst does — estimate the free cash flow, discount it at the cost of capital, add a terminal value, bridge enterprise value to equity, and defend the call.
- Assessed by Final examination 60% · Group valuation assignment 35% · Optional quiz 5%
- Key terms Free cash flow to the firm (FCFF), WACC, ROIC vs WACC, Terminal / continuing value
- How to prepare Make the DCF engine automatic: forecast FCFF, discount at the WACC, add a terminal value, then bridge EV → equity &rarr…
- Most asked What is on the FINM3005 final exam?
How FINM3005 is assessed
| Component | Weight | Format |
|---|---|---|
| Final examination | 60% | Closed-book, individual · ANU exam period · every topic examinable |
| Group valuation assignment | 35% | Teams of 4–6 valuing an ASX company · due ~Week 11 |
| Optional quiz | 5% | Online, individual, Week 5 · redeemable — if skipped or beaten by your exam, the 5% rolls onto the final — confirm the exact rule in your class summary |
What FINM3005 covers
Ten lecture topics → one exam-ready map. Each links to its free chapter guide.
DCF Valuation Foundations
Intrinsic value · FCFF · the 6-step enterprise DCF · terminal value · the EV→equity bridgeDiscounted cash flow (DCF) is the engine the whole of FINM3005/6005 runs on, and this chapter is its centrepiece.
- The valuation mindset: intrinsic vs book vs market value
- The four valuation approaches and where DCF sits
- The value-creation engine: g = reinvestment × ROIC, value only when ROIC > WACC
- The DCF in one picture: PV(FCF) + PV(TV) = EV → equity bridge
- FCFF vs FCFE and the six-step enterprise DCF
- Terminal value three ways: convergence, Gordon/KVD, exit multiple
Forecasting Free Cash Flow
Reorganise the statements · NOPLAT · invested capital · ROIC · forecast the stock, derive the flowBefore you can discount free cash flow you have to produce it, and reported accounts will not hand it to you — they commingle operating, non-operating and financing items, and the cash-flow statement mixes all three.
- Reorganising the statements: operating vs non-operating vs financing
- From EBITA to NOPLAT and the reconciliation check
- Invested capital, reconstructed free cash flow, and ROIC
- Why ROIC, not ROA or ROE, is the valuation metric
- Forecasting line by line: forecast the stock, derive the flow
- The ROIC decomposition: operating margin × capital turnover
Cost of Capital
WACC · CAPM & the SML · beta unlever/relever · cost of debt · market-value target weightsThe discount rate is where most valuations quietly go astray: a beautifully forecast cash flow discounts to the wrong number if the WACC is wrong.
- WACC: the blended hurdle rate and the four consistency principles
- Cost of equity via the CAPM and the security market line
- Pinning the inputs: risk-free rate, market risk premium, beta
- Beta: the unlever–relever two-step from peer betas
- Cost of debt from the credit spread, made after-tax
- Setting the weights: market value, at the target structure
Growth and Terminal Value
g = reinvestment × ROIC · RONIC vs WACC · the value ladder · fade · convergence CVEvery forecast has a growth rate baked into it, and the temptation is to treat a higher g as automatically good news. This chapter is the systematic refutation of that instinct: growth is not value — the spread is.
- Organic vs inorganic growth — same valuation test for both
- The value-driver tree: margin × turnover → ROIC, reinvestment × ROIC → g
- The growth identity and FCF = NOPLAT(1 − g/ROIC)
- RONIC vs WACC: the NPV-of-growth rule
- The value-of-growth ladder: not all growth is equal
- Competitive fade and why convergence is the default terminal value
Trading and Transaction Multiples
P/E · EV/EBITA · claimholder consistency · control premium · the football fieldA multiple is (what you pay) ÷ (what you get) — price per dollar of earnings, EBITDA, sales or book — and roughly 80% of equity-research reports and over half of acquisition valuations lean on them.
- What a multiple is, and why it is an implied DCF
- The four-step discipline: define, describe, analyse, apply
- P/E and its drivers (growth, payout, risk, leverage)
- EV/EBITA vs EV/EBITDA, EV/Sales, P/B and their drivers
- Trading comps vs transaction comps (the control premium)
- Peer selection and dilution
Sum-of-the-Parts and M&A
Segment WACC · conglomerate discount · synergy vs premium · accretion ≠ valueThis chapter applies the valuation engine to two structures where a single company-wide DCF breaks down: multi-business firms and acquisitions.
- Sum-of-the-parts: value each segment at its own WACC
- The corporate centre and the conglomerate discount
- When SOTP beats a single consolidated DCF
- M&A: forms of acquisition and the value identity
- The synergy > premium test and valuing synergy
- Cash vs stock, the exchange ratio and goodwill
Valuation Recommendation
Triangulation · TRS · market efficiency · sensitivity & scenario · the Buy/Hold/Sell callThis is the capstone, where the whole course lands.
- Triangulation: reconciling DCF, multiples and SOTP into one range
- Value vs price and the forms of market efficiency
- The TRS decomposition: earnings growth, P/E change, dividend yield
- Sensitivity analysis and the tornado
- Scenario analysis: worst/base/best, probability-weighted
- Holdings and minority-interest consistency in multiples
Nearly every problem runs the same engine: PV of free cash flow at the WACC → enterprise value → bridge to equity → per share, wrapped around one decision rule, value is created only when ROIC > WACC.
The final exam is 60% in one closed-book sitting and every topic is examinable, and it is an applied paper that grades model-building integrity, not a single “right” number — so this guide teaches each method to exam standard, in the five-beat answer shape the markers reward.
Worked example · free
A one-page enterprise DCF — EV to value per share, mark by mark
- +1Continuing value. RONIC = WACC, so growth adds nothing → use convergence CV₃ = NOPLAT₄ ÷ WACC = 63 ÷ 0.09 = $700m, dated at end of year 3.
- +1Discount factors at 9%: 0.917, 0.842, 0.772 for years 1–3.
- +1PV of explicit FCFF: 50(0.917) + 54(0.842) + 58(0.772) = 45.9 + 45.5 + 44.8 = $136.2m.
- +1PV of the continuing value: 700 × 0.772 = $540.4m (discount the CV by the year-3 factor).
- +1Enterprise value: EV = 136.2 + 540.4 = $676.6m (the CV is ~80% of EV — normal, and why the terminal assumption dominates).
- +1Bridge and per share: equity = 676.6 − 200 = $476.6m; value per share = 476.6 ÷ 100 = $4.77.
Key terms
- Free cash flow to the firm (FCFF)
- The after-tax cash an operating business generates for all providers of capital — NOPLAT plus non-cash charges minus reinvestment in invested capital. It excludes interest (financing is in the WACC) and is discounted at the WACC, never the cost of equity.
- WACC
- Weighted-average cost of capital = (E/V)·cost of equity + (D/V)·after-tax cost of debt, using market-value weights at the firm's target structure. It is the rate that discounts FCFF, because FCFF is cash to all investors.
- ROIC vs WACC
- Return on invested capital (NOPLAT/invested capital) versus the cost of capital — the value-creation test. Value is created only when ROIC > WACC; below it, faster growth destroys value. The single comparison that threads through every week.
- Terminal / continuing value
- The value of operations after the explicit forecast ends, collapsed into one number at the horizon. Estimated by convergence (NOPLAT/WACC, the default), the Gordon/key-value-driver formula, or an exit multiple — and usually the majority of enterprise value.
- EV→equity bridge
- The step from enterprise value to equity value: subtract net debt, minority interest and other non-equity claims, then divide by shares for value per share. Keeping operating, non-operating and financing items in exactly one place each is what makes the bridge add up.
FINM3005 FAQ
Is FINM3005 hard?
It is conceptually demanding but pattern-based: nearly every problem runs the same engine — PV of free cash flow at the WACC, enterprise value, bridge to equity, per share — so once you can build a clean DCF on fresh numbers, the difficulty is precision and consistency under exam time. The exam is applied, not spreadsheet recall, and grades model-building integrity rather than a single right number.
How is FINM3005 assessed?
The final exam is 60% in one closed-book sitting over the ANU exam period, and every topic is examinable. The remaining 40% is a group valuation assignment (about 35%, teams of 4–6 valuing an ASX company, due around Week 11) and an optional, redeemable Week-5 quiz (about 5%) — if you skip it or your exam beats it, the 5% rolls onto the final. Confirm this year's exact weights and dates in your class summary.
What is on the FINM3005 final exam?
The whole valuation pipeline: enterprise DCF and the EV-to-equity bridge, reorganising statements to NOPLAT and ROIC, forecasting, WACC with CAPM and the beta unlever/relever two-step, growth and terminal value (RONIC vs WACC), trading and transaction multiples, sum-of-the-parts, M&A (synergy vs premium), and forming a Buy/Hold/Sell recommendation.
Expect a company sketch with accounts and inputs, plus short concept items (why enterprise DCF, the convergence-CV rationale, ROIC vs WACC, market efficiency).
Is the exam open or closed book?
The source describes the final as a closed-book, individual written paper — you do not open a spreadsheet model in the exam. Always confirm the book status and any permitted materials in your own class summary, as details can shift between cohorts.
Is using AskSia for FINM3005 cheating?
No. AskSia is a study reference written in our own words — we host none of your lecturer's files, and Sia teaches you the method to earn the marks; it does not complete or sit your assessments.
Questions students ask in each FINM3005 chapter
- Why discount FCFF at the WACC rather than the cost of equity?
- Because the numerator and denominator must refer to the same claimholders. FCFF is the cash to all investors (debt and equity), so it is discounted at the blended return all investors require — the WACC. FCFE, the cash to equity only, is discounted at the cost of equity. Crossing them (FCFF at the cost of equity, or FCFE at the WACC) is the single most common and most costly DCF mistake. Chapter 01 · DCF Valuation Foundations
- Why reorganise the statements at all — can't I use the reported numbers?
- No. Reported accounts mix operating, non-operating and financing items, and the cash-flow statement converts the other two but mixes all three, so it does not hand you operating cash flow. To value operations you re-cut the accounts on an economic basis, separating the operating engine from excess cash, investments and the financing tail, then rebuild ROIC and free cash flow from that clean core. Every later step — WACC, DCF, multiples — sits on this reorganisation. Chapter 02 · Forecasting Free Cash Flow
- Why must I use market-value, not book, weights?
- Book equity is a historical accounting residual; the market value of equity is what shareholders actually have at stake. For a healthy firm book equity is below market equity, so book weights overstate the debt weight and drag the WACC the wrong way. Use market-value equity and net debt at market value (including leases and pension, less excess cash). Book weights are the single most common WACC error. Chapter 03 · Cost of Capital
- Why isn't faster growth always good?
- Because growth consumes capital and capital has a cost. A company can grow revenue, earnings and even EPS while shrinking in value if the new capital earns below the cost of capital. The market eventually sees through growth that earns below the WACC. Never recommend a stock on its growth rate alone — always ask what the new capital earns relative to the WACC. Chapter 04 · Growth and Terminal Value
- What is the single biggest multiples mistake?
- Numerator–denominator claimholder mismatch — putting an equity price over a firm-level metric (P/Sales) or an enterprise value over net income. Always match: EV pairs with firm-level metrics (EBITDA, EBITA, sales, invested capital), price pairs with equity metrics (net income, book equity). A close second is mixing earnings lines — comparing an EV/EBITDA peer to an EV/EBIT subject silently inflates the subject; pick one earnings line and apply it uniformly across every peer. Chapter 05 · Trading and Transaction Multiples
- Why give each segment its own WACC instead of one group WACC?
- Because segments differ in risk and growth, so a single blanket WACC over-discounts a low-risk arm (under-valuing it) and under-discounts a high-risk arm (over-valuing it), and the two errors do not cancel — they depend on each arm's cash-flow timing and size. Estimating each segment's WACC from single-business peers (unlever their betas, relever at the segment's leverage) removes the bias. This is the payoff of the comparable-beta machinery from the cost-of-capital chapter. Chapter 06 · Sum-of-the-Parts and M&A
- How do I reconcile a DCF and a comps value that disagree?
- Treat the divergence as information, not noise. Because every multiple embeds the same fundamentals a DCF makes explicit (P/E and EV/EBITA are both functions of growth, ROIC and the discount rate), a sharp DCF-vs-comps gap means one of your inputs disagrees with the market's. Find out which — usually long-run growth or margin — decide who is right, and present a triangulated range with a reasoned point inside it rather than forcing a single number. Chapter 07 · Valuation Recommendation
How to study for the exam
Make the DCF engine automatic: forecast FCFF, discount at the WACC, add a terminal value, then bridge EV → equity → per share — and write that bridge every single time. Drill the five-beat answer shape the markers reward (set up assumptions and flag the fragile ones; build/compute; bridge to per share; sanity-check with ROIC > WACC and the CV share of EV; recommend).
Keep the recurring traps front of mind — discount-rate mismatch (FCFF at WACC, FCFE at the cost of equity), nominal-vs-real consistency, double-counting interest, book instead of market WACC weights, and averaging levered betas.
Because the 60% final is closed-book and the 5% quiz only redeems into it, nothing backstops the exam — so treat the 35% group assignment as exam practice with a longer deadline (building the model is learning the exam) and over-invest in clean, defensible, exam-style reasoning.
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