# Question about equity valuation based on FCFF/FCFE

I am at volume 4 right now (Nov exam). I am working on the practice questions for Reading 28 (page 343) and the FCFF and FCFE valuation calculations are super long. I don’t know of a shortcut for the calculator. If we could use a spreadsheet on the exam it’d be much easier… but…

My question is, on the exam, will we really have to manually calculate these? Gonna take at least 5 minutes and especially rushing, it’s very easy to mess up a number or two.

The DDM model is much simpler to do since it’s primarily the dividend that we have to worry about. With the cash flows, there are so many variables.

Can’t predict your exam of course, but I’d really study all those FCFF and FCFE variants. Expect them to probably ask questions about something that appears so heavily in the materials. DDM is simpler but it also doesn’t apply to some firms. And analysts will typically run multiple models not just the simplest ones, so this is preparation for real life in this respect. If you do 5-8 mocks in preparation you should, by exam day, be able to answer the questions more quickly due to repetition and cluing in on key data points where they appear in vignettes. You’ll be faster then than now.

Cheers and good luck - you got this👍

Thank you. I am trying hard to commit the different formulas to memory. I just realized there’s an error in the final practice question. I tried for half an hr to get the same answer but couldn’t and then I realized this part is wrong:
The terminal value at the end of Year 3 is TV3 = FCFF4/(WACC – g4).
TV3 = 3,398.66/(0.0770 – 0.0075) = €48,921.38 million.

3398.66 divided by 0.0695 is not what they say.

It is 48,901.58.

Didn’t affect the answer as it was one of those overvalued or undervalued questions, but it was frustrating nevertheless because I wanted to be able to match the numbers so that I know I am doing it correctly.

This is not the first error in the curriculum I’ve noticed. But it’s the first I remembered to mark up.

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Things happen, usually they spot and issue an erratum. But if you’re like most of us, you never read the errata anyway haha. Heck knows I never did, it fully occupied my time just doing the regular readings. Anyway keep doing what you’re doing - you got this👍