https://quizlet.

com/ca/414350138/technicals-flash-cards/

This is a compilation of INTERESTING interview questions Roy received in mocks/actual

interviews while prepping for summer 2020 interviews. Most of them are here because they are
hard, but some are here because they are interesting. For anyone seeing this doc in the future,
know that questions with “past” written are from interviews for summer 2019 or earlier, while
“current” are from interviews Roy/his friends attended to for summer 2020.

The bolded/extra large font ones are extra hard.

Some questions (esp ones concerning numbers) may be actually different, but the overall
concepts are testing for the same things.

Keywords quoted in the “knowledge areas” section is the part of BIWS primers you should focus
on for this question + an explanation. E.g “DCFs - x concept” means “read the DCF BIWS guide
for explanations on concept X”

If you would like to add questions to this list, please let Roy know

Technicals

1.(Past Goldman LA Superday) Assuming you purchase a company with 1000 in fixed
assets and 800 in liabilities for 1000 dollars in cash (stock acquisition method). Walk
through the changes on your balance sheet (assuming no asset write-ups)

2.(Past SilverLake Superday) What discount rate would you use for NOLs?

3.(Past Houlihan LA RX First Round) Assuming you purchase $500 in inventory with 10% PIK
debt, and you sell half of it for $500 within the same year. Walk through the 3 statements (40%
tax rate)

4.(Past PJT/Evercore Superday) Assuming a company issues a surprise dividend with

excess cash that it has on its balance sheet. What should be the change to the
company’s intrinsic P/E ratio as result? HINT: INSTEAD OF THINKING ABOUT P/E, THINK
ABOUT IT FROM A EARNINGS YIELD PERSPECTIVE

5.(Past unknown, supplied by Amir Knod, HBA2020) What are the differences between cash
flow from operations and unlevered free cash flow?
6.(Past unknown, supplied by Sean Gu, HBA2020) Company A and B both have $200 in
revenue, A acquires B and A now has $450 in revenue. There is no synergy and no growth.
Where did the $50 extra revenue come from?

7.You acquire a company with 1000 in fixed assets and 800 in liabilities for 100 dollars in
cash. Walk through the changes to your 3 statements immediately after this transaction
takes place. Assume 40% tax rate.

8.(Past unknown, supplied by Aron San, HBA2020) Which of the following has a greater impact
on your DCF’s valuation? A $1 increase in revenue, a $1 increase in cash operating expense, or
a $1 increase in changes to NWC? Rank them.

9.(Found on WSO) What happens to your EV when your CapEx increases by $100 on
your DCF? (Simple answer right? Your EV goes down bc FCF goes down) But why is it
then, that when you use $100 in cash to buy a capital asset, your enterprise value
increases based on the EV equation? How do you explain this difference in outcomes?

10. (Past unknown, popular) Name 3 ways lowering tax rate affects your DCF valuation. What is
the overall impact of lowering the tax rate on your cash flows?

11. (Past Moelis phone interview) A company has 100 shares outstanding. It just issued
$100 in convertible bonds that has 15% PIK interest rate. After 5 years, the bonds are
converted at strike price of $1. What’s the % dilution? NO WRITING THIS DOWN,
MENTAL MATH

12. (Current Summer 2020 HL RX first round) A company buys an asset for 50% debt and 50%
equity. The after-tax cost of debt is 5%. After one year, the ROA is 10%. What is the ROE?

13. (Ducera 2020) What is the difference between a LBO model and a merger model?
14. (Ducera 2020) company has 30 in ar, 50 in Inv, 20 in ap at end of year. In Q1 next year
company made 90 in revenue with 80% gross margin. Company's days or ar is 90 days,
days of Inv is 45 and days of ap is 60. How much did their cash flow decrease due to
working cap?

15. (Barclays Toronto 2020) Company A acquires Company B. Here’s what we know:

Company A has equity value of $1000, minority interest of $400, debt of $600

Company B has enterprise value of $400, no debt

A acquires B with debt. After the acquisition, what is the enterprise value assuming it’s a
normal acquisition?

Why might the enterprise value be more than what you just calculated?

Why might the enterprise value be less than what you just calculated?

Why might A’s enterprise value not change from this acquisition?

Behaviourals (no answers provided, up to you!)

1.(Past PJT/Evercore Superday) Explain a complex finance concept to me in simple

terms. Then explain a complex non-finance concept to me in simple terms.

2.(Past Evercore Superday) When was a time you made a mistake, and kept on making
the same mistake?

Technicals answers

1.Cash goes down by 1000, fixed assets go up by 1000, goodwill goes up by 800, asset side
net change: +800; liabilities go up by 800, liabilities side net change: +800

Knowledge areas: M&A, equity value. Understand that no change to equity bc no issuance of
equity, and that the company should only be worth 200 dollars (hence 800 dollars goodwill
created)
2.NOLs should be discounted using cost of equity, since NOLs do not benefit debt holders at all
(only applied to when taxes are being paid, which is only for equity holders)

Knowledge areas: DCFs

3.I/S - Revenue increases by 500, COGS increases by 250, EBITDA increases by 250, interest
expense increases by $50, and pre-tax income increases by $200, net income increases by
$120

C/F - net income increases by $120, add back $50 in PIK debt, subtract $250 due to changes in
working capital, cash from operating down by $80; cash from financing up by $500 due to taking
out debt; net change in cash is up by $420

B/S - cash is up by $420, inventory is up by $250, asset side net change: +670; debt is up by
$550, retained earnings is up by $120, liabilities side net change:+670

Knowledge areas: accounting, debt. Common F-ups include not accounting for the working
capital changes, not understanding how to treat PIK debt, and not understanding that debt
should be added as source of cash for CF from Financing

4.P/E decreases (earnings yield increases). The idea is that P/E is blended multiple out of all
the assets within the company, and cash returns the least earnings to the company (since the
return on cash is only about 2%). Hence, if there is less asset in the firm because cash has
decreased, then P/E should decrease as result.

Knowledge areas: valuation, M&A (accretion/dilution analysis)

5.There are 4 differences: one-time expenses/income that CFFO includes but UFCF does not;
capital expenditures that UFCF includes but CFFO does not; interest expense and its
corresponding tax savings that CFFO accounts for but UFCF does not; treatment of tax - in
UFCF, it is assumed all tax expense is immediately paid in cash, whereas CFFO only reflects
the amount of tax that the company actually paid

Knowledge areas: DCFs, accounting. It’s really easy to get point 1 and 3 if you know DCFs
inside-out, and really easy to get point 2 if you know how a cash flow statement works really
well. Point 4 is just messed up.

6.2 key reasons: different revenue recognition policies (when A acquires B, it recognizes $50
extra revenue from B’s operations); combined minority investment in the same company (if A
and B both own 30% of company C in stock, then the merged company now owns 60% of
company C, and can consolidate its balance sheet with A’s).

7.Before walking through the 3 statements, understand that this is a bargain purchase and that
you have a capital gain of 100 dollars.

I/S- extraordinary income increases by $100 (this occurs after EBITDA), so your pre-tax income
increases by $100. Your net income increases by $60.

C/F - net income increases by $60, take out $100 in non-cash income, your CFFO goes down
by $40. CFFF goes down by $100 due to the acquisition. Cash net change is -$140.

B/S - cash is down by $140, assets are up by $1000, asset side net change: +$860; liabilities is
up by $800, retained earnings is up by $60, liabilities side net change: +$860.

Knowledge areas: accounting. Know that in a bargain purchase, paying less than the book
value leads to extraordinary income.

8.NWC > operating expense > revenue. Easy to see why NWC is the highest: it’s after tax. But
operating expense is gonna have a greater impact than revenue because revenue has to take
into account COGS as well.

Knowledge areas: DCFs.

9. Your DCF’s EV valuation decreases because it does not consider the future cash flow
generation of the asset you have invested in, whereas in the EV equation, by converting cash
into capital investment, your EV increases because your firm’s future cash flow generation
increases.

Knowledge areas: enterprise value.

10. Number 1: Lowers cash tax, increases cash flow; number 2: increases cost of debt because
lessens interest shield, decreases cash flow due to increased WACC; number 3: increases cost
of equity because beta is larger due to higher effect of debt, increases WACC and decreases
cash flow. Overall effect: uncertain.

Knowledge areas: DCFs - levering and unlevering betas. Understand that WACC calculations
see tax rate being used in 2 separate places
11. 15% PIK interest in 5 years means the debt is compounded by 15% annually. From
experience working with IRRs you should know that this means the debt balance doubles after 5
years ($100 → $200). This means 200 shares get converted after 5 years. This is a 200%
dilution on the original equity.

Knowledge areas: PIK interest, IRR (LBOs)

12. 15%. Assuming the asset is worth $100, then you need $50 debt and $50 equity. After one
year, $10 is generated. 5% cost of debt means $2.5 goes to service the debt. Hence, equity
holders get $7.5, which is 15% ROE (7.5/50)

13. LBO assumes exit after projection period, while merger model follows DCF format (long-
term value)
● While typical merger models assume simpler mixes of cash/debt/equity, LBO models are
almost entirely debt and equity (with very high proportions and complex tranches of
debt)
● You are not combining the 2 companies balance sheets under a LBO model
● In a merger model, the new equity value that is created is determined by the amount of
equity the acquirer issues; in a LBO model, the equity value is whatever cash amount
the PE firm contributes, along with any roll-over equity

15. More due to A + B holding minority stakes in another company that now is more than 50%
and can be consolidated to their balance sheets

If company B is just an empty holdings company for A’s minority stake (as in the minority
interest of $400), then A’s enterprise value will not change from this acquisition)