Interview Question for Valuation Associate at Kroll:

Need to obtain cash flows and discount rates... so:
1.) Find cost of debt, i.e. compare interest coverage ratio vs. comparable companies within the industry. Use interest coverage ratio comparison to generate synthetic debt rating.
2.) Find cost of equity.
a.) take the beta of the firm and unlever it. Then, compare to other companies within the space to generate a reasonable industry beta, and reapply the leverage to generate levered beta.
b.) make assumptions/find stats for risk free rate (usually 30-year t-bonds).
c.) add Rf+(Return_on_market*Beta_of_firm)
3.) find WACC. MVE/(MVE+MVD)*(cost of equity)+(MVD/MVE+MVD)*(1-tax_rate)*(MVD)
4.) Find NOPAT and determine adjustments to create Free Cash Flow.
5.) Value FCF in perpetuity. Use perpetuity formula. Payment/(discount_rate - growth_rate). Growth rate should be growth rate of the economy.
6.) Use comparable companies and market valuations to check assumptions and to see whether you're in the ballpark.

Done!