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Investment Banking Interview Challenge Questions

Was discussing what some of the more challenging questions a few mentees have been receiving from interviews at elite boutiques (Evercore/Moelis/Centerview) – just kidding, Centerview questions are much harder.

Have a go and send in your answers for our great reveal next week. First person to answer them all right gets to have coffee with me at Dineen.

1. Buyer has share price of $50, shares outstanding of 1 million and net income for $6 million. The tax rate is 40%.

Target has a share price of $11, S/O of 500,000, net income of $1.5 million.

Is a purchase dilutive with 50% stock and 50% debt funding?

2. With pre-tax synergies of $500,000, what percentage is the deal accretive or dilutive?

3. Purchase multiple of 5x, debt/equity of 60%, interest on debt of 10%, revenue of $100 million, annual revenue growth of 10%, EBITDA margin of 40%, capex of 15%, net working capital of $5 million, depreciation of $20 million per year straight line on existing PP&E, tax rate of 40%, exit multiple of 5x. What is the IRR for the deal.

4. A company is about to go into liquidation. The enterprise value of the company is $1 billion and there is face value $600 million of senior secured debt (with 1L on said assets) and $500 million of unsecured debt outstanding where you can buy secured for 80 cents on the dollar and unsecured for 50 cents on the dollar. Which one do you buy and why?

I have not actually taken the time to answer the questions but would imagine not having to take a long time as I am very intelligent.

Here are the answers to last weeks investment banking interview questions:

Tell me a joke.

John is driving his Porsche and sees a beautiful instagram model driving a Porsche. They crash.

John stumbles out and miraculously, both drivers are unscathed.

“Look at our cars! They have been totaled but yet nary a scratch on us. This is a sign from God,” said the woman, invoking that scene from Pulp Fiction.

“I agree!”

The woman looks at the back of her car.

“Another sign, I have this bottle of Dom Perignon Rose and it too is unscathed. We were meant to bless this occasion with wine to celebrate being alive.”

What a connection, John was already playing out the movie of explaining how they met to friends.

The woman passed the bottle of Dom to John who took a massive swig.

He passes the champagne back to the woman who reseals it and passes it back to him.

“Well, aren’t you going to have any?”

“No, I’ll wait for the police.”

Ha… ha…

What is a fallen angel? Can you give me an example? (Debt Capital Markets)

A fallen angel is a company that was investment grade rated for its debt but has since been downgraded to junk. Usually, these are very unattractive junk bonds from a covenant perspective as they will not have any of the protective provisions afforded to high yield issuers as they were issued on far more favorable terms as a BBB and above entity.

An example is Transocean.

What two companies should merge? Why? (Investment Banking)

This can be a really easy question or really hard depending on how hard the interviewer grills you.

An example could be Restaurant Brands International and Krispy Kreme – an opportunity for revenue synergies (cross selling donuts in Burger King, expanding Krispy Kreme to geographies where Burger King is), cost synergies (fire everyone who works in corporate office at Krispy Kreme, share value chain with Tim Hortons) and corporate finance synergies (access to cheaper debt).

They generally do not dig that deep here but do more research if you anticipate someone telling you that is a stupid answer.

A stock is trading at $5 and a stock is trading at $20 – which one do you recommend?

Not enough information – the share price is meaningless as an indicator of value.

What are the three forms of the Efficient Market Hypothesis? Which forms do you believe in and why?

Strong, semi-strong, weak efficiency. At least in the US you would think it is at best semi-strong otherwise there would not be stocks doing well and poorly like we see. A case to be made that the US is far more efficient than an emerging market, but that is a bigger conversation.

Prepare to elaborate a lot more on this question.

Past Editions

Can You Answer These 5 Investment Banking Questions 1
Can You Answer These 5 Investment Banking Questions 2
Can You Answer These 5 Investment Banking Questions 3
Can You Answer These 5 Investment Banking Questions 4
Can You Answer These 5 Investment Banking Questions 5
Can You Answer These 5 Investment Banking Questions 6
Can You Answer These 5 Investment Banking Questions 7
Can You Answer These 5 Investment Banking Questions 8

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Matt
ex investment banking associate
https://www.linkedin.com/in/matt-walker-ssh/

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