Top Investment Banking Interview Questions (And Answers)

10/2/2019 Top 28 Investment Banking Interview Questions You Must Know!
(IB Tips)
Investment Banking Interview

(https://www.wallstreet
mojo.com/)
Questions (with Answers)
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investment-banking/)
Tutorials
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 Investment
Banking Careers 
Investment Banking
 Interview Questions
(with Answers) 
How to get into

Investment Banking?
 etmojo.com/how-to-
Top Investment Banking
get-into-investment- Interview Questions (and
banking/)
Investment Banking Answers)
Analyst
 etmojo.com/investme The purpose of this Investment Banking Interview Questions and

nt-banking-analyst/)
Answers is simply to help you learn about the investment banking
Investment Banking
Job Description (https://www.wallstreetmojo.com/what-is-investment-banking/)
https://www.wallstreetmojo.com/investment-banking-interview-questions/ 1/31
10/2/2019 Top 28 Investment Banking Interview Questions You Must Know! (IB Tips)
(https://www.wallstre interview topics. As a fresher in this eld, I am sure you may have had
 etmojo.com/investme
(https://www.wallstreet jitters as to what and how to prepare for your rst step in this nance
nt-banking-job-
mojo.com/)
description/) world. There could be an unlimited number of questions that can be
Investment Banking asked on investment banking topics and since it is dif cult to cover all
Division (IBD)
of them here, we would be discussing a few of them which are

etmojo.com/investme important.
nt-banking-division/)
Investment Banking
While reading through this write-up, I would suggest you actively
Associate Salary
(https://www.wallstre keep answering the questions yourself before checking the correct
 etmojo.com/investme answer. This will help you develop the habit of brainstorming and
nt-banking-associate-
answering these questions in a structured way. Please consider this
salary/)
Analyst vs Associate as a rst draft of the article. I will keep on regularly updating this
(https://www.wallstre with more questions and answers based on your feedback.
 etmojo.com/analyst-
vs-associate/)
The interview nowadays does not have the typical questions being
Investment Banking
Job For Graduates asked which include the basics on nancial concepts. The interviewers
(Engineers) | Top 8 want the candidates to think and avoid theories which everyone
Tips
usually knows. Also since these questions are technical ones there
 (https://www.wallstre
etmojo.com/investme would always be a correct answer, so in case you nd yourself not
nt-banking-job-
knowing a particular answer, don’t try and fake one. It is always better
graduate/)
to confess that you don’t know.
How to get an
Investment Banking
Internship? Investment Banking Interview Questions have been divided into the
(https://www.wallstre following 6 topics

etmojo.com/investme
nt-banking-
internship/)
Top 10 Finance
Certi cations Start Your Free Investment Banking Course
Programs
Download IB Excel Templates, Accounting, Valuation, Financial Modeling,
 (https://www.wallstre
Video Tutorials
t j /
etmojo.com/ nance-
certi cations/)
Investment Banking 1. Accounting
mojo.com/)
Lifestyle 2. Corporate Finance
 (https://www.wallstre 3. Valuation
etmojo.com/investme
nt-banker-lifestyle/) 4. Merger and Acquisitions (M&A)
Investment Banking 5. Initial Public Offering (IPO)
Exit Opportunities
6. Miscellaneous

nt-banking-exit-
opportunities/) #1 – Accounting – Investment
Investment Banking
Banking Interview Questions
Case Studies
nt-banking-case- Investment Banking Interview Question #1
studies/)
Tell me about the three most important nancial statements and
Top 10 Best Finance
courses (with Online what is their signi cance
Certi cation)
 (https://www.wallstre This is one the most commonly asked investment banking interview
etmojo.com/ nance-
question.
courses/)
Investor Relation Job
Description The three main nancial statements
(https://www.wallstre (https://www.wallstreetmojo.com/ nance-for-non- nance-
 etmojo.com/investor-
managers-professionals-training/) are the Income Statement,
relation-job-
description/) Balance Sheet and Cash Flow Statement. Speaking about their
Financial Analyst Job signi cance, the income statement provides with the revenue
Description
 etmojo.com/ nancial- and expenses of a company and shows the nal net income that
analyst-job-
it has made over a period of time.
description/)
Investment Banking The balance sheet signi es
vs Equity Research (https://www.wallstreetmojo.com/balance-sheet/) the assets of a

 etmojo.com/investme company such as plant, property & equipment, cash, inventory
mojo.com/)
nt-banking-vs-equity- and other resources. Similarly, it reports the liabilities which
research/)
includes the Shareholders equity, debt and accounts payable
Investment Banking
vs Asset Management (https://www.wallstreetmojo.com/accounts-payable-days-
(https://www.wallstre payable-outstanding/). The balance sheet is such that the assets
would always equal the Liabilities plus shareholders equity.
nt-banking-vs-asset-
management/) Lastly, there is the cash ow statement which reports the net
Commercial Banking change in Cash. It gives the cash ow from the operating,
vs Merchant Banking
investing and nancing activities of the company.
 etmojo.com/commerci
al-banking-vs-
merchant-banking/)
Investment Banking
vs Corporate Banking Investment Banking Interview Question #2
In case you have the chance to evaluate the nancial viability of the
nt-banking-vs- company which statement would you choose and why?
corporate-banking/)
Portfolio Management It would be the cash ow statement. The reason being that it
vs Investment
provides a true picture of how much cash the business is
Banking
(https://www.wallstre generating in actual terms.

etmojo.com/portfolio-
The cash ows are hence the main thing you actually pay
management-vs-
investment-banking/)
attention to while you are analyzing the overall nancial health
Investment Banking of the business.

vs Hedge Fund
Manager
(https://www.wallstre Investment Banking Interview Question #3
 etmojo.com/investme Let’s say that the depreciation expense goes up by $100. How
nt-banking-vs-hedge-
would this affect the nancial statements?
fund-manager/)
Investment Banking
Income Statement: With the depreciation expense decreasing
vs Investment Income Statement: With the depreciation expense decreasing

Management Operating Income would decline by $100 and assuming a 40%
mojo.com/) tax rate, Net Income would go down by $60.
nt-banking-vs- Cash Flow Statement: The Net Income at the top of the cash
investment-
ow statement goes down by $60, but the $100 Depreciation is
management/)
Investment Banking
a non-cash expense
vs Private Equity (https://www.wallstreetmojo.com/depreciation/) that gets added
back, so overall Cash Flow from Operations
nt-banking-vs- (https://www.wallstreetmojo.com/cash- ow-from-operations/)
private-equity/) goes up by $40. With no further changes, the overall Net
 Investment Banking Change in Cash goes up by $40.
Basics (44+)  Balance Sheet: On the asset side because of the depreciation the
(https://www.wallstreet Plants, Property & Equipment goes down by $100, and Cash is
mojo.com/category/inve up by $40 from the changes on the Cash Flow Statement.
stment-
banking/investment-
Investment Banking Interview Question #4
banking-basics)
Imagine a situation where a customer pays for a mobile phone with
 Investment Banking
a credit card. What would this look like under cash-based vs.
Firms (27+) 
accrual accounting?
mojo.com/category/inve
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Financial Modeling Course
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btnz=wsm-blg-inline-banner1)
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modeling-course/?btnz=wsm-blg-inline-banner1)
stment-
banking/cryptocurrency-
basics) In case of cash-based accounting

(https://www.wallstreetmojo.com/cash-accounting/), the revenue
Related Courses
would not be accounted for until the company charges the
Investment Banking
Course customer’s credit card, obtains an authorization and deposits the
funds in its bank account.
etmojo.com/investmen
 t-banking-training/? After this entry would be showed as revenue in the income
btnz=wsm-blg-rel- statement and also as cash in the balance sheet.
crs)
As against in accrual accounting, it would be shown as Revenue
Financial Modeling
Course right away. But it would yet not appear as Cash in the Balance
(https://www.wallstre Sheet, rather it will be shown as Accounts Receivable.
etmojo.com/ nancial-
modeling-course/? Only after the amount is deposited in the company’s bank


btnz=wsm-blg-rel-
account, it would be reported as cash.
crs)
M&A Course
Al h l k hi d il d l i C h A l
(https://www.wallstre Also, have a look at this detailed explanation on Cash vs Accrual

etmojo.com/mergers-
(https://www.wallstreet Accounting (https://www.wallstreetmojo.com/cash-accounting-vs-
 and-acquisitions-
mojo.com/)
course/?btnz=wsm- accrual-accounting/).
blg-rel-crs)
LBO Modeling Course Recommended Courses
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Mergers and Acquisitions Program

(https://www.wallstreetmojo.com/mergers-and-
acquisitions-course/)
#2 – Corporate Finance –
Investment Banking
Interview Questions
mojo.com/)
(https://cdn.wallstreetmojo.com/w
p-
content/uploads/2015/09/Corpor
ate-Finance.jpg)
What is the formula for calculating WACC?
Do expect this investment banking interview question.
WACC (https://www.wallstreetmojo.com/weighted-average-
cost-capital-wacc/) = Cost of Equity * Proportion of Equity +
Cost of debt * Proportion of debt (1-tax rate). Where, The cost

of equity (https://www.wallstreetmojo.com/cost-of-equity-
capm/) calculated using the Capital Asset Pricing Model
(https://www.wallstreetmojo.com/what-is-beta-in-capm-
calculate-beta-levered-vs-unlevered-beta/) (CAPM).
The formula is Cost of Equity = Risk free rate + Beta* Equity risk
premium
(https://www.wallstreet Cost of Debt = The risk-free rate is basically the yield of a 10-
mojo.com/) year or 20-year US Treasury
(https://www.wallstreetmojo.com/risk-free-rate/)
Beta is calculated (https://www.wallstreetmojo.com/beta-

coef cient-calculate/) based on how risky are the comparable
companies and equity
Risk Premium is the percent by which stocks are expected to

out-perform “risk-less” assets.
The proportion is basically the percentage of how much of the

company’s capital structure is taken up by each of the
components.
There are two companies P and Q which are exactly the same, but
one P has debt whereas Q doesn’t have any. In this case, which of
the two companies would have a higher WACC?
In this scenario company, Q would have a higher WACC,

because debt is less expensive than equity.
The interviewer at this juncture might ask you the reasons why
debt is considered to be less expensive?
The answer is as follows; Interest on debt is tax-deductible

(hence the (1 – Tax Rate) multiplication in the WACC formula)
(https://www.wallstreetmojo.com/wacc-formula/).
Debt holders would be paid rst in a liquidation or bankruptcy
(https://www.wallstreet (https://www.wallstreetmojo.com/chapter-7-vs-chapter-13-
mojo.com/) bankruptcy/).
Instinctively, interest rates on debt are usually lower than the
Cost of Equity numbers you see.

As a result, the Cost of Debt portion of WACC will contribute
less to the total gure than the Cost of Equity portion will.
#3 – Valuations – Investment
mojo.com/)
p-
content/uploads/2015/09/Valuati
on.jpg)


Describe the ways in which a company is valued
This is another veyr common investment banking interview question.
Precedent transaction analysis
This is also called as Transaction Multiple Valuation
(https://www.wallstreetmojo.com/transaction-multiples/)
This is when you look at how much others have paid for similar
companies to determine how much the company is worth.
To use this method effectively you need to be extremely familiar
with the industry of the company you are valuing as well as the
(https://www.wallstreet normal premiums paid for such a company.

mojo.com/)
Comparable Company Analysis
Comparable company analysis

(https://www.wallstreetmojo.com/comparable-company-
analysis-comps/) is similar to Precedent Transactions Analysis

except you are using the whole company as an assessment unit,
not the purchase of a company.
So to use this method you would also look for out similar
companies to the one you are valuing and look at their price
to earnings (https://www.wallstreetmojo.com/pe-ratio/), EBITDA,
stock price and any other variables you think would be an

pointer of the health of a company.
Discounted Cash Flow Analysis
This is when you use future cash ow

(https://www.wallstreetmojo.com/free-cash- ow- rm-fcff/), or
what the company will make in the upcoming years, to
determine what the company is worth now.

To calculate DCF (https://www.wallstreetmojo.com/dcf-
discounted-cash- ow/) you need to work out what the probable
or future cash ow is for a company for the next 10 years.
Then work out how much that would be in today’s terms by

“discounting” it at the rate that would give a return on
investment.
Then you add in the terminal value of the company
(https://www.wallstreet (https://www.wallstreetmojo.com/terminal-value-formula-
mojo.com/) method-calculations-in-excel/) and that will tell you how much
the company is worth.
Which are the situations in which we do not use a DCF in the
valuation?
We would not use a DCF in the valuation if the company has an

unstable or unpredictable cash ow or when debt and working
capital serve a fundamentally different role.

For example nancial institutions like banks do not re-invest
debt and working capital forms a major part of their balance
sheets- so here we do not use a DCF for such companies.

List the most common multiples used in a valuation
Valuation questions are very common in investment banking

interview.
These are relative valuation (https://www.wallstreetmojo.com/equity-

value-vs-enterprise-value-calculate-formula/)techniques given below-
EV/Revenue (https://www.wallstreetmojo.com/enterprise-value-
to-sales-ev-to-sales-ratio/)
EV/EBITDA (https://www.wallstreetmojo.com/ev-to-ebitda-
multiple-formula/)
(https://www.wallstreet EV/EBIT (https://www.wallstreetmojo.com/ev-to-ebit/)

mojo.com/) P/E (https://www.wallstreetmojo.com/pe-ratio/)
P/BV (https://www.wallstreetmojo.com/price-to-book-value-
ratio/)

Brie y explain leveraged buyout?
One of the technical investment banking interview question.
A leveraged buyout (https://www.wallstreetmojo.com/leverage-

buyout-lbo-analysis/) (LBO) is when a company or investor buys
another company using mostly borrowed money, loans or even
bonds to be able to make the purchase.
The assets of the company being acquired are usually used a

collateral for those loans.
Sometimes the ratio of debt to equity in an LBO can be 90-10.
Any debt percentage higher than that can lead to bankruptcy.

Explain PEG ratio?
This stands for Price/earnings to growth ratio and takes the P/E
ratio and then accounts for how fast the EPS for the company
will grow.
A stock which is growing rapidly will have a higher PEG ratio

(https://www.wallstreetmojo.com/peg-ratio/). A stock that is ne
priced will have the same P/E ratio and PEG ratio.
(https://www.wallstreet So if a company’s P/E ratio is 20 and its PEG ratio is also 20

mojo.com/) some might argue that the stock is too expensive if another
company with the same EPS has a lower P/E ratio, but that also
means that it’s growing faster because the PEG rate is 20.

What is the formula for Enterprise Value?
The formula for enterprise value

(https://www.wallstreetmojo.com/enterprise-value/) is: market
value of equity (https://www.wallstreetmojo.com/market-

capitalization/) (MVE) + debt + preferred stock + minority
interest – cash.

Why do you think the cash is subtracted in the formula for
enterprise value?
The reason why cash is subtracted is that it is regarded as a

non-operating asset and because Equity Value indirectly
accounts for it.
Why do we consider both enterprise value and equity value?
Enterprise value signi es the value of the company that is

attributable to all investors whereas equity value represents the
attributable to all investors, whereas equity value represents the

portion available to equity shareholders
mojo.com/) (https://www.wallstreetmojo.com/equity-value/).
We consider both because equity value is the number the public
at large sees, while enterprise value represents its true value.

What does it signify, if a company has a negative enterprise value?
The company could have negative enterprise value when the
company has extremely large cash balances or an extremely low

market capitalization (https://www.wallstreetmojo.com/market-
capitalization/) or both.
This could occur in companies which are on the brink of
bankruptcy or Financial institutions such as the banks, which
have large cash balances.
#4 – Mergers and Acquisitions –

Investment Banking
I t i Q ti
Interview Questions
mojo.com/)
(https://cdn.wallstreetmojo.com/
wp-
content/uploads/2015/09/MA.jp
g)

Brie y explain the process of a buy-side M&A deal
Lots of time is spent completing research on the potential

acquisition targets and with the company, you are representing,
go through multiple cycles of selection and ltering.

Based on the feedback from them narrow down the list and
decide which ones are to be further approached.
Meetings are conducted to gauge the receptivity of potential

seller.
Serious discussions with the seller take place which calls for in-
depth due diligence and guring out the offer price.
(https://www.wallstreet Negotiate the price and other key terms of the purchase
mojo.com/) agreement.
Announce the M&A deal
(https://www.wallstreetmojo.com/investment-banking-mergers-
and-acquisitions/)/transaction.
Brie y explain accretion and dilution analysis

This one is another technical investment banking interview question.
In order to gauge the impact of an acquisition to the acquirer’s

Earnings per share (https://www.wallstreetmojo.com/earnings-
per-share-basic-eps/) (EPS) and also compare it with the
company’s EPS if the acquisition would have not been executed
accretion and dilution analysis is undertaken.
In simple words we could say that in the scenario of the new

EPS being higher, the transaction will be called “accretive” while
the opposite would be called “dilutive.”

Given a situation where a company with a low P/E acquires a
company with a high P/E in an all-stock deal, will the deal likely be
accretive or dilutive?
Other things being equal, in a situation where a company with a
low P/E acquires a company with a high P/E, the transaction

would be dilutive to the acquirer’s Earnings per Share (EPS).
The reason for this is that the acquirer will have to shell out more
(https://www.wallstreet for each rupee of earnings than the, market values its own
mojo.com/) earnings.
Therefore in such situation the acquirer would have to issue
proportionally more shares in the transaction.

What are the synergies and its types?
Synergies are where the buyer gets more value than out of an
acquisition than what the nancials would predict.There are
basically two types of synergies –

Revenue synergy: the combined company can cross-sell
products to new customers or up-sell new products to existing
customers. Because of the deal it could be possible to expand in
new geographies.
Cost synergies: the combined company could amalgamate
buildings and administrative staff and can lay off redundant

employees. It could also be in a position to close down
redundant stores or locations.

How does Goodwill get created in an acquisition?
Goodwill is an intangible asset that mostly stays the same over

years and is not amortized like other intangibles.
(https://www.wallstreetmojo.com/goodwill/) It only changes
when there is an acquisition.
(https://www.wallstreet Goodwill is basically the valuable assets which are not shown
mojo.com/) like nancial assets on the balance sheet. For example, brand
name, customer relationship, intellectual property rights etc.
Goodwill is basically the subtraction of the book value of a
company from its equity purchase price. It signi es the value
over the “fair market value” of the seller that the buyer has paid.
#5 – Initial Public Offerings

(IPO) – Investment Banking
Interview Questions
mojo.com/)
p-
content/uploads/2015/09/IPO.jpg
)

Brie y describe what would you do if you are working on an IPO for
a client?
First of all, we would meet the client and gather all the
necessary information such as their nancial details, customers

and learn about the sector they belong to.
After this, you would meet other bankers and lawyers the
registration statement which would describe the company’s
business and market to its investors.
Next, you would receive comments from the SEC

(https://www.sec.gov/edgar.shtml) and keep revising the
document until it is acceptable.
Now you would spend the coming weeks in organizing
(https://www.wallstreet roadshows where you would present the company to the

mojo.com/) institutional clients and also convince them to invest in them.
After raising capital for the clients the company would start
trading on the exchange.

What are the bene ts of a company getting listed on an exchange?
It is an important step for a company to achieve liquidity

There are certain investors who would want to invest only in
exchange-listed issuers
It helps the company establish a recognized value for their stock
which in turn could also help it use stock for acquisitions rather
than cash
#1 – Miscellaneous – Investment

What is in a pitch book?
Pitch book (https://www.wallstreetmojo.com/investment-banking-

pitch-books/) depends on the kind of deal the company is pitching for
but the common structure would include:
Bank credentials to prove their expertise in completing similar

mojo.com/) deals before.
Summary of company’s options
Appropriate nancial models and valuation
(https://www.wallstreetmojo.com/free- nancial-modeling-
training-course/)
Investment Banking Charts
(https://www.wallstreetmojo.com/investment-banking-charts-
pe-charts-pe-band-chart-football- eld-scenario-graphs/)
Potential acquisition targets or potential buyers
Summary and key recommendations

Tell me a company you admire/follow and pitch me a stock
You need to structure your answer for such investment banking

interivew questions keeping in mind the following;
Give the name of the stock you have been following and the
reason for the same

Quickly summarize what the company’s business
Provide a quick overview of the nancials to indicate its size and
how pro table it is. Also if you can provide with speci c details
on Revenue, EBITDA multiples, or its P/E multiple
Provide reasons as to how the stock or their business is more

attractive than its rivals.
You should speak about the trend the stock has had at least in
the past 3-5 years.
(https://www.wallstreet You could also talk about the future outlook for the company.
mojo.com/)

When buying a company why do private equity rms use leverage?
The private equity (https://www.wallstreetmojo.com/private-

equity-analyst/) rm reduces the amount of equity to the deal by
using signi cant amounts of leverage (debt) to help nance the
purchase price.
By doing this, it will increase the private equity rm’s
(https://www.wallstreetmojo.com/private-equity-in-india/) rate of
return substantially when exiting the investment.

What is convexity?
Convexity (https://www.wallstreetmojo.com/convexity-of-a-
bond-formula-duration/) is a more accurate measure of the
relationship between yield and price changes in bonds in relation
to the change in interest rates.
Duration calculates this as a straight line, when in actuality it is a
convex curve, hence the name.

This is used as a risk calculation because it can tell how a bond
yield will respond to interest rate changes.

De ne risk-adjusted rate of returns
When looking at an investment you cannot simply look at the

return that is projected. If the pro t from investment A is greater
mojo.com/)
than the pro t from investment B you may immediately want to
go with investment A.
But investment A might have a greater chance of a total loss
than investment B so even though the pro t may be larger, it is a
lot riskier and therefore not necessarily a better investment.
The adjusted rate of return
(https://www.wallstreetmojo.com/risk-adjusted-returns/) is when
you not only look at the return that an investment may give you,
but you also measure the risk of that investment.

The adjusted rate of return is usually denoted as a number or
rating.
If you are technically minded you may also want to mention the
ways that risk is measured: beta, alpha, and the Sharpe ratio
(https://www.wallstreetmojo.com/sharpe-ratio/), r-squared and
standard deviation.
Conclusion
The key to successfully answering these technical investment banking

interview questions is to apply the concepts you’re learning and test
yourself. Hope this has helped you learn some important question and
answers on investment banking topics and brings you steps closer to

crack the high pro le interviews. All the best
P S Kindly note we have only touched upon the technical questions
P.S. Kindly note we have only touched upon the technical questions
and their types, apart from these you would also have to prepare for
mojo.com/) the personal questions, why investment banking Interview questions
and brain teasers which are usually part of testing the candidates.
Recommended Readings
In this guide, we list the top 28 most common asked Investment

Banking Interview Questions and Answers that you must know. Here
we discuss the tips to answer the Investment banking interview

questions on accounting, valuations, modeling, Pitchbook, M&A, IPO,
Leveraged buyouts and others. You may also have a look at these
Q&A to learn more –
Valuation Interview Questions and Answers

(https://www.wallstreetmojo.com/valuation-interview-
questions/)
Equity Research Interview Questions (with Answers)
(https://www.wallstreetmojo.com/equity-research-interview-
questions/)
Corporate Finance Interview Questions (with Answers)
(https://www.wallstreetmojo.com/corporate- nance-interview-
questions/)
Financial Modeling Interview Questions (With Answers)
(https://www.wallstreetmojo.com/ nancial-modeling-interview-
questions-answers/)
Investment Banking
Investment Banking
(https://www.wallstreet Training (117
mojo.com/) Courses, 25+
Projects)
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Comments
Kiran Patil says
simply amazing
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Dheeraj Vaidya says

mojo.com/)
thanks Kiran!
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Jaspal Gidwani says
Awesome knowledge you have shared.Thanks sir.
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Dheeraj says
My pleasure Jaspal!
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Zaie says
Hey..thanks for this question bank..It is going to prove quite helpful for my interview
preparations. Also if you could prepare a similar guide for the personal questions that could be
asked in the HR round of interviews it would be great:)
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Dheeraj says
Thanks Zaie!
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Top Investment Banking Interview Questions (And Answers)

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Top Investment Banking Interview Questions (And Answers)

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10/2/2019 Top 28 Investment Banking Interview Questions You Must Know!

Investment Banking Interview

Investment Banking  (https://www.wallstreetmojo.com/how-to-get-into-

How to get into

 etmojo.com/investme The purpose of this Investment Banking Interview Questions and

vs Equity Research (https://www.wallstreetmojo.com/balance-sheet/) the assets of a

Investment Banking of the business.

vs Investment Income Statement: With the depreciation expense decreasing

 Investment Banking Change in Cash goes up by $40.

stment-  Popular Course in this category

stment-banking/top-      4.9 (831 ratings)

basics) In case of cash-based accounting

modeling-course/? Only after the amount is deposited in the company’s bank

(https://www.wallstre Also, have a look at this detailed explanation on Cash vs Accrual

Mergers and Acquisitions Program

Do expect this investment banking interview question.

Cost of debt * Proportion of debt (1-tax rate). Where, The cost

Beta is calculated (https://www.wallstreetmojo.com/beta-

Risk Premium is the percent by which stocks are expected to

The proportion is basically the percentage of how much of the

In this scenario company, Q would have a higher WACC,

debt is considered to be less expensive?

The answer is as follows; Interest on debt is tax-deductible

Debt holders would be paid rst in a liquidation or bankruptcy

Cost of Equity numbers you see.

Investment Banking Interview Question #8

This is another veyr common investment banking interview question.

Precedent transaction analysis

This is also called as Transaction Multiple Valuation

To use this method effectively you need to be extremely familiar

(https://www.wallstreet normal premiums paid for such a company.

Comparable Company Analysis

Comparable company analysis

analysis-comps/) is similar to Precedent Transactions Analysis

stock price and any other variables you think would be an

Discounted Cash Flow Analysis

This is when you use future cash ow

determine what the company is worth now.

or future cash ow is for a company for the next 10 years.

Then work out how much that would be in today’s terms by

Then you add in the terminal value of the company

the company is worth.

We would not use a DCF in the valuation if the company has an

capital serve a fundamentally different role.

Investment Banking Interview Question #10

Valuation questions are very common in investment banking

These are relative valuation (https://www.wallstreetmojo.com/equity-

(https://www.wallstreet EV/EBIT (https://www.wallstreetmojo.com/ev-to-ebit/)

Investment Banking Interview Question #11

One of the technical investment banking interview question.

A leveraged buyout (https://www.wallstreetmojo.com/leverage-

The assets of the company being acquired are usually used a

Investment Banking Interview Question #12

A stock which is growing rapidly will have a higher PEG ratio

(https://www.wallstreet So if a company’s P/E ratio is 20 and its PEG ratio is also 20

Investment Banking Interview Question #13

The formula for enterprise value

value of equity (https://www.wallstreetmojo.com/market-

Investment Banking Interview Question #14

The reason why cash is subtracted is that it is regarded as a

Investment Banking Interview Question #15

Why do we consider both enterprise value and equity value?

Enterprise value signi es the value of the company that is