Investment Banking Interview Questions: Answer Frameworks and Sample Answers

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1. 01EasyWalk me through a DCFHow to answer "walk me through a DCF" in an investment banking interview: a five-step framework, a sample answer, likely follow-ups and common mistakes.
2. 02EasyWalk me through the three financial statementsHow to answer "walk me through the three financial statements" in IB interviews: what each statement shows, how they link, a sample answer and mistakes.
3. 03MediumIf depreciation goes up by $10, walk me through the three statementsDepreciation goes up by $10: a step-by-step answer across all three statements at a 25% tax rate, why cash goes up, and the classic mistake to avoid.
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5. 04EasyEnterprise value vs equity value: what is the difference?Enterprise value vs equity value for IB interviews: definitions, the EV bridge, which multiples pair with each, and why minority interest is added back.
6. 05MediumWhat is WACC and how do you calculate it?What is WACC and how do you calculate it? IB interview answer with the formula, cost of equity via CAPM, after-tax cost of debt and the beta follow-up.
7. 06MediumWhat is terminal value and how do you calculate it?Terminal value in a DCF: the Gordon Growth and exit multiple formulas, when to use each, how to cross-check them and why sensitivity tables matter.
8. 07EasyWalk me through an LBO modelHow to answer "walk me through an LBO model": sources and uses, cash flow and debt paydown, exit, IRR and MOIC, plus what makes a good LBO candidate.
9. 08MediumHow do you do a paper LBO?Paper LBO walkthrough for IB and PE interviews: 10x entry, $200M EBITDA, 6x debt, 5% growth, 10x exit in 5 years, with MOIC, IRR and rules of thumb.
10. 09EasyWalk me through a merger modelHow to answer "walk me through a merger model": purchase price, combined EPS, adjustments, accretion/dilution and the all-stock P/E rule, with follow-ups.
11. 10FitWhy investment banking?How to answer "why investment banking?": a structure built on specific reasons, an answer outline, and the generic answers to avoid in IB fit interviews.
12. 11EasyWhat is the difference between cash and accrual accounting?Cash vs accrual accounting for investment banking interviews: when revenue and expenses are recorded, a worked example, and why the cash flow statement exists.
13. 12MediumA company prepays $12M of rent for the year: walk me through the three statementsPrepaid rent three statement walk-through for IB interviews: the $12M payment, the expense over the year, net income, cash flow and balance sheet at 25% tax.
14. 13EasyWhat is goodwill and how is it created?What is goodwill for IB interviews: purchase price above fair value of identifiable net assets, what it represents, impairment testing and bargain purchases.
15. 14MediumHow does a goodwill impairment affect the three statements?Goodwill impairment three statement walk-through: a $100M non-cash write-down, tax-deductible vs not, cash flow add-back and balance sheet effects.
16. 15MediumWalk me through the enterprise value bridgeEnterprise value bridge for IB interviews: from diluted equity value to EV, adding debt, preferred stock and minority interest, subtracting cash and investments.
17. 16MediumWhy do you add minority interest (noncontrolling interest) to enterprise value?Why add minority interest to enterprise value: consolidation of 100% of a subsidiary's EBITDA, the consistency rule for multiples, and the equity investment mirror.
18. 17EasyWhat is deferred revenue and is it a source or use of cash?Deferred revenue for IB interviews: cash collected before delivery, why it is a liability, its three statement impact, and why an increase is a source of cash.
19. 18MediumLIFO vs FIFO: how does each affect the financial statements when prices rise?LIFO vs FIFO with rising prices for IB interviews: COGS, net income, taxes, cash flow and inventory under each method, plus IFRS rules and the LIFO reserve.
20. 19MediumWhat is the difference between unlevered and levered free cash flow?Unlevered vs levered free cash flow for IB interviews: formulas, why interest and debt repayment matter, matching discount rates, and which value each gives.
21. 20HardHow should you treat stock-based compensation in free cash flow and a DCF?Stock-based compensation in a DCF for IB interviews: why the add-back overstates cash flow, treating SBC as a real cost, and avoiding double counting dilution.
22. 21MediumA company issues $100M of debt to buy back stock: walk me through the three statementsDebt-funded share buyback three statement walk-through: $100M of debt, financing cash flows, treasury stock, then 6% interest and the EPS accretion test.
23. 22MediumWhat is a deferred tax asset vs a deferred tax liability?Deferred tax asset vs deferred tax liability for IB interviews: book vs tax timing differences, accelerated depreciation, NOLs, valuation allowances, M&A write-ups.
24. 23EasyWhat is working capital and how does an increase affect cash flow?Working capital for IB interviews: current assets minus current liabilities, operating NWC in models, why an increase uses cash, and when negative NWC is good.
25. 24EasyWhat is the difference between capitalizing and expensing a cost?Capitalizing vs expensing for IB interviews: the useful life test, effects on EBITDA, net income and cash flow sections, with a $10M machine worked example.
26. 25HardHow do operating leases appear on the financial statements under ASC 842?Operating leases under ASC 842 for IB interviews: right-of-use asset and lease liability, straight-line lease cost, cash flow treatment, IFRS 16 and EV consistency.
27. 26MediumHow do you calculate diluted shares with the treasury stock method?Treasury stock method for IB interviews: in-the-money options, exercise proceeds used to buy back shares, a worked 105M diluted share example, RSUs and convertibles.
28. 27EasyHow do you calculate cost of equity?How to calculate cost of equity for IB interviews: CAPM with risk-free rate, beta and equity risk premium, a worked example, and when to add a size premium.
29. 28MediumWhat beta would you use for a private company?Beta for a private company in IB interviews: unlever comparable company betas, take the median, relever at the target's capital structure, plus a worked example.
30. 29MediumGordon Growth vs exit multiple: which terminal value method should you use?Gordon Growth vs exit multiple terminal value for IB interviews: choosing a method, cross-checking implied multiples and growth rates, and a worked example.
31. 30HardCan you do a DCF for a company with negative free cash flow?DCF with negative free cash flow for IB interviews: extend the projection period, model the path to profitability, use scenarios, cross-check with revenue multiples.
32. 31EasyWalk me through how you would build a comparable companies analysisHow to build a comparable companies analysis for IB interviews: picking peers, spreading financials, calendarizing, choosing multiples and applying a range.
33. 32EasyWhy do precedent transactions usually give higher valuations than comps?Why precedent transactions usually exceed trading comps: control premiums, synergies and competitive auctions, plus when the pattern reverses and data limits.
34. 33MediumIf you raise the discount rate by 1%, what happens to DCF value?Raising the discount rate by 1% in a DCF: value falls, a worked terminal value example with 2% growth, the exit multiple case and sensitivity tables.
35. 34EasyWhy use NTM multiples instead of LTM multiples?NTM vs LTM multiples for IB interviews: why forward multiples reflect what markets price, when LTM is better, calendarizing and comparing high-growth companies.
36. 35MediumWhat is accretion/dilution in M&A?Accretion/dilution in M&A for IB interviews: pro forma EPS vs standalone EPS, the adjustments that move it, the cost of funding shortcut and what it misses.
37. 36MediumIn an all-stock deal, what determines if it is accretive or dilutive?All-stock deal accretion or dilution for IB interviews: buyer P/E vs purchase P/E, a worked example, and why synergies and write-ups can change the answer.
38. 37EasyWhat are synergies in M&A?Synergies in M&A for IB interviews: cost vs revenue synergies, why cost synergies are more credible, integration costs, phasing and valuing them in a deal.
39. 38MediumCash vs stock consideration in M&A: what are the trade-offs?Cash vs stock consideration in M&A for IB interviews: certainty, risk sharing, tax treatment, cost of capital, dilution, signaling and execution trade-offs.
40. 39EasyWalk me through a sell-side M&A processSell-side M&A process for IB interviews: preparation, teaser and CIM, buyer outreach, IOIs, management meetings, data room, final bids, signing and closing.
41. 40HardWhat is the difference between an asset deal and a stock deal?Asset deal vs stock deal for IB interviews: what the buyer acquires, liabilities, tax basis step-up, double taxation for C-corps, and the 338(h)(10) election.
42. 41HardHow do you calculate goodwill in an acquisition (purchase price allocation)?Goodwill calculation in a purchase price allocation: equity purchase price, book value, asset write-ups, new deferred tax liability, with a worked $1,000M example.
43. 42EasyWhat makes a good LBO candidate?What makes a good LBO candidate for IB and PE interviews: stable cash flow, low capex, strong market position, improvement levers, reasonable price and a clear exit.
44. 43MediumWhat are the three ways private equity firms create value?The three ways private equity creates value for IB and PE interviews: EBITDA growth, multiple expansion and debt paydown, with an example of each lever.
45. 44EasyWhat is the difference between IRR and MOIC?IRR vs MOIC for IB and PE interviews: definitions, why timing matters, converting 2.0x into IRR over three and five years, and how dividend recaps affect each.
46. 45HardWhich creates more value in an LBO: one turn of multiple expansion or one more turn of leverage?One turn of multiple expansion vs one more turn of leverage in an LBO: a worked $100M EBITDA example showing why expansion creates value and leverage only magnifies.
47. 46MediumWhat is a dividend recapitalization?Dividend recapitalization explained for IB and PE interviews: new debt paying a dividend to owners, effects on IRR and MOIC, the three statements and the risks.
48. 47HardWhy can't you use EV/EBITDA to value a bank?Why EV/EBITDA does not work for banks in IB interviews: debt and interest are operating items, so use P/E, P/TBV, ROE and a dividend discount model instead.
49. 48FitWalk me through your resume (investment banking interview)How to answer walk me through your resume in investment banking interviews: a two-minute story, key decisions, why banking, why now, and a sample structure.
50. 49FitWhy do you want to work at our bank?How to answer why our bank in IB interviews: specific deal and sector strengths, what you learned from people at the firm, team structure and fit with your goals.
51. 50FitWhat is your greatest weakness? (investment banking interview)How to answer what is your greatest weakness in IB interviews: pick a real but manageable weakness, show the steps you took, give evidence and avoid clichés.

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