Investment Banking Interview Questions

You should be prepared to answer the following questions during an investment banking interview. A lot of this is covered in the Vault Guide to inance Interviews and the !erger and Inquisitions Guide. Everything on your resume, have a 30 second snippet about every line item prepared Practice a 2-4 minute background speech countless number of times (this is extremely important because first impressions last it sets the stage for the rest of the intervie! - if you come off as !ell-spoken and sharp here, the rest of the intervie! is smooth sailing"# $ocus on your strongest accomplishments and use the opportunity to differentiate yourself from the other people applying# %sually the background speech !ill end !ith a &uestion about !hy you !ant to !ork in the industry# 'ou may have touched upon that !hen you talk about choosing your ma(or, but they)ll !ant a formal response# Make sure to know the industry and what it does. *nvestment banks typically connect people that have capital (investors" !ith the people that need capital (corporations, governments, etc#" and advise on strategic transactions# Prepare 3 strong reasons !hy you !ant to do that (ob# Prepare 3 &ualities that make you a good fit for the (ob# +*P, -ave examples from your previous !ork experience that describe this ability# ..+*P, -ave an example for everything/ 0ased on the general flo!, pick and choose the times you !ant to use your example, it may not be for everything# 0e &uick !ith these# 1no! a fe! things that separate you from the rest of the applicants# 2nce again, the &ualities, strengths, and this &uestion all sound pretty much the same, but it)s important you kno! the variations# 'ou can try and institute !hatever ans!er you are most happy !ith for any of these &uestions# 1no! 3 one-!ord characteristics a friend might describe you as# 1no! 3 character fla! a friend might say about you# 4lso, have a fe! !eaknesses ready# 5hen you ans!er, don6t call them 7!eaknesses8 call them 7areas to improve8 and make sure they are not dealbreakers# 1no! !hat you think the difference is bet!een a good analyst and a great analyst is# 4 great analyst is al!ays gro!ing, asking &uestions, and learning something kne! each day# 4lso, a great analyst !ill never make the same mistake t!ice# 1no! !hat you !ould do if you !ere over!helmed !ith the !ork you !ere supposed to get accomplished and !eren)t going to be able to get done# 1no! 3 things that you are passionate about outside of school and !ork#

1no! your favorite movie and your favorite book# -ave an industry that you are interested in prepared# 1no! some of the important multiples for this industry (P9:, :nterprise ;alue9:0*+<4, gro!th rate"# 1no! !hat you might !ant to do in =-30 years# 1no! !hat the company stands for# 1no! one recent deal the company has done# 1no! the company)s chairman or >:2# 1no! the company)s stock price# 1no! the difference bet!een :nterprise ;alue and :&uity ;alue# 1no! !hat ?inority *nterest is# 1no! !hy :nterprise ;alue multiples have corresponding denominators such as :0*+9:0*+<4 or @ales# 1no! !hy :&uity ;alue multiples have corresponding denominators such as Aet *ncome# 1no! 3 !ays to value a company# 1no! important assumptions that go into a <>$# 1no! ho! to calculate unlevered and levered free cash flo!s# 1no! ho! and !hy different cash flo!s give you different values# %nlevered cash flo!s !ill give you the :nterprise ;alue of the firm because it represents cash flo!s to everyone that has a claim on the firm# Bevered free cash flo!s only represent flo!s to e&uity holders and !ill give you the :&uity ;alue of the company# 1no! ho! the financial statements link# $or example, if depreciation is C30m more than expected, ho! !ould that flo! through the financial statements# *n these &uestions, * think it is best to start !ith the *ncome @tatement, then move on to the >ash $lo! @tatement, and do the 0alance @heet last to double check your !ork so 4ssets D Biabilities E :&uity 1no! ho! and !hy to unlever and lever betas# 1no! >4P? (>apital 4sset Pricing ?odel" and ho! it is used to calculate the cost of e&uity# *t is, >ost of :&uity D risk free rate E 0eta . (Feturn of ?arket Fisk $ree Fate"# Generally banks think of the 30-year +reasury note as a rough proxy for the risk free rate# 1no! ho! to calculate 54>>#

1no! the hierarchy of securities - the cost of e&uity !ill 4B54'@ be greater than the cost of debt# 1no! !hy 54>> decreases as level of debt increases up to a certain point# (:ven though cost of debt and cost of e&uity both !ould increase, the relative values change#" 1no! 3 !ays an executive could manage earnings# (e#g# <H4 assumptions, accounting for receivables, etc#" 1no! the ranges of valuations that methods !ould give you# (?arket ?ultiples, Precedent +ransactions, <>$" Precedent +ransactions add a premium, they !ill provide the highest valuation# ?arket multiples and <>$ !ill be close to each other# 1eep in mind that <>$s are sub(ective as !ell the value depends a great deal on several key inputs# +hus if they say, the company is valued at C3=0, C3==, and C300, !hich method !ould go !ith !hich valuation and if you !ere going to advise a manager on ho! much they !ould have to pay right no! for a firm !hat !ould it be# 4ns!er, 300# 1no! about the importance of taxes and tax shields# (e#g # if <H4 !ent up by C30mm, !hat effect does this have on A*I" 4ns!er, A* goes do!n by Jmm if taxes are 40K# 0e able to flo! this through the statements# 1no! the difference bet!een capital and operating leases and ho! they are treated on the >ash $lo! @tatement#