# Hardest Investment Banking Technical Questions

## Метаданные

- **Канал:** Exponent
- **YouTube:** https://www.youtube.com/watch?v=lsF9AFIa3zU
- **Дата:** 21.04.2026
- **Длительность:** 21:26
- **Просмотры:** 1,080
- **Источник:** https://ekstraktznaniy.ru/video/49996

## Описание

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## Транскрипт

### Segment 1 (00:00 - 05:00) []

So, all of these questions we're about to cover are recent investment banking interview questions. They were hand-selected by me and they're the hardest of the most common questions that come up in investment banking technical interviews. We're going to go through five questions specifically from top elite boutique and bulge bracket banks and they're going to get harder as we go on. My name is Max and having interviewed hundreds of candidates for these positions and interviewed at dozens of firms myself, I'm going to be able to walk you through what the interviewer is evaluating, common mistakes in this process, and tips to get unstuck. Let's dig in. So, the first question here is from one of the top elite boutique banks in the world. And it reads like this. It says, "In year five of the DCF, your company has $7 billion of EBITDA and $5 billion of free cash flow. Your WACC is 10% and you're going to trade at 15x EBITDA in your terminal year. What's your implied perpetuity growth rate? " So, before we get into how to solve this, let's talk about what it's actually testing. Because this is a real question that they they've been asking for years to try and understand a couple things. First off, do you understand what a discounted cash flow analysis and of course, do you understand the multiple different ways of calculating the terminal value. Multiples method, perpetuity growth rate method. Second, can you do algebra? We'll get into this in a little bit, but what most candidates miss about this question is that it's fundamentally an algebra question. And then third, mental math. This is so important in investment banking interviews, especially at a lot of these elite boutiques where they're really testing for just absolute IQ and absolute technical ability is you've got to be able to do the mental math. So, with those caveats aside, let's see how to actually solve it. So, the first thing is, again, recognizing that this is in fact an algebra problem. You've got two sides to the equation. You've got the multiples method and you've got the perpetuity growth rate method. And so, the multiples method super simple, EBITDA times multiple, which is basically 7 * 15. That's your terminal value according to the first method. But theoretically, the multiples method and the Gordon growth method should be equal to each other. And so, on the other side of the equation, we can set up the second half, which is free cash flow times one plus the growth rate divided by WACC minus the growth rate. And so, just plug in the numbers here, $5 billion of free cash flow, 10% of WACC, and then it's solving. And so, on the left side we get we basically cross over that 10% minus G, we get 105 * 10% minus 105 G equals 5 + 5 G divided over 110 G equals 5. 5, and then you get your growth rate of 5%. And so, that's what we're getting for here is a 5% terminal growth rate, which is actually pretty reasonable. It's on a little bit on the higher side. Normally, you like to see it closer to GDP growth like 3%, but 5% is not bad. And so, you can kind of sense check after doing the problem, is this real? Is this bad? Is it good? Who knows. Now, one area where a lot of students get stuck is the mental math here. And so, if you're getting stuck on the mental math as you're thinking through this, one simple trick. Let's take a look at this 110 G equals 5. 5 section because a lot of people they stumble once they get to that point in the problem. The best thing you can do is just multiply everything by 10. I know it sounds ridiculous, but getting rid of the decimal place like actually helps. And so, you get a 1,100 G equals 55. And then if at least in my brain, it's very easy to kind of try and figure out how many times does 55 go into 1,100? And that's a much easier problem than trying to deal with a 5. 5. So, try that out and see if that helps with the mental math next time. So, the second question is from Guggenheim and it's an enterprise value and equity value question. So, let's read through it together. It goes something like this. You've got 100,000 shares outstanding trading at $10 a share. You have 5,000 options at a $5 strike price, 100,000 worth of convertible notes at a $5 strike price. What's the fully diluted equity value? This is a really tricky question because a lot of people don't realize how complicated equity value can get. And so, many people they just think, "Oh, you take the shares, you multiply it by the price. " No, no. There's a whole bunch of other stuff that goes into it. We're talking about options here. We're talking about strike prices. We're talking about treasury stock method, convertible notes. Everything's going to go into answering this question. And in fact, it can get even more complicated than this. Let's talk a little bit about how to break down each of the concepts that are going into it. And a great answer is going to sound something like this. So, first off, we've got to calculate out what the equity value looks like. And so, we take the 100,000, we multiply it by 10, and that gets us our basic equity value. That's not the fully diluted equity value. That's the basic equity value. But then, we've got treasury stock method. That's the second major concept that comes up here. And so, as a refresher, the treasury stock method is basically just an assumption that we make when we're valuing companies that we say, "Hey, we're going to issue all these options, but we're going to buy back some of them using the proceeds from the strike price. " In this case, what that's going to mean is we're going to have 5,000 options, we're going to generate 25k in cash because our employees they have to pay us 5,000 * 5 = 25,000.

### Segment 2 (05:00 - 10:00) [5:00]

But then, we go back and we buy back the shares. And so, at the $10 market price, that means that our net dilution isn't 5,000 shares, it's 2. 5k. And so, that's the actual options that are going to be diluting the share count here. One hack that I love when I'm doing treasury stock method questions is I simply take the ratio between the strike price and the stock price, multiply that by the number of shares. So, look at that here. Basically, it's a $5 strike price and $10 a share. That means that you're just going to have 50% dilution. So, you didn't have to go through all the math of saying 5,000 * 5 / 10 whatever. Ignore all of that. Look at the ratio. The third piece here is the convertible debt. And convertible debt sounds so intimidating to most candidates, but once you break it down, it's actually pretty simple. And so, in this case, all it is you're saying there's $100,000 worth of convertible notes and they've got a $5 strike price. It's as simple as saying 20,000 extra shares. There's a slightly more complicated version of this that involves a conversion ratio, which we can get into if we ever need to, but for now, let's just say 20,000 shares. And so, basically we get the stock options, 2. 5k. We get the convertible note shares, 20k. And then we get 100k of the shares outstanding. That means we get 122. 5 thousand total shares outstanding times $10 a share. You can do the math. 1. 225 million. Now, one thing that people always mess up on equity value questions is they try multiplying the share price by the stock price right up front. And so, when I asked a challenging version of this question as an interviewer, a lot of the times people would say, "Oh, 100 * 10, a million. " And then they try and do everything on an aggregate dollar basis. But the smartest candidates, the best candidates, they separate themselves from the pack by saying, "No, no, I'm not going to do that. I'm going to go figure out the shares and then multiply it by the share price right at the end. " Because then you only have to do the calculation once, not like 10 times throughout the course of the problem. So, this next question is from one of the toughest elite boutiques on the planet. And it's a question around depreciation, cash flow, enterprise value. It's really going to test your intuition on what happens as you change different levers in the free cash flow formulas. And so, this one is also going to test your mental math. And it's not quite as complicated as some of the other questions that we've discussed, but if you're not solid on your mental math, you got to get there. We'll talk through a couple of tips on how to do so. So, let's read through it. It says, "Depreciation increases by $10 in your terminal year. Using the perpetuity growth method with a WACC of 10%, a growth of 0%, and a tax rate of 20%, what is the change in terminal value? " The tougher version of this question says change instead of increase, but your interviewer did you a solid here by saying increase. The first part that we know is that there's going to be a decrease in the net income. And so, pre-tax income is just going to be the depreciation. So, the depreciation is an expense, it flows through your income statement, you know that. Pre-tax income is going to go down by 10. But, we've always got to remember taxes. Taxes are one of the most commonly overlooked things in technical interviews. And so, you've got to make sure that whenever there's an impact from a tax shield or a tax disadvantage, that that's coming through in your answer. And so, in this case, it's not going to decrease net income by $10, but by $8. Now, here's where it gets kind of fun because you're like, "Oh, the expense is increasing, the value is going to decrease, right? " No, because this is a non-cash expense. And so, we've got a non-cash expense of $10, but our net income only went down by eight. And so, when we add that back, we actually end up with a $2 increase in cash flow. Kind of crazy. The expense increased and the cash increased. Like, what happened? Well, this is where you've got to go back to thinking again about taxes because the real tax implication here isn't depreciation. The depreciation doesn't influence the cash flows. What influenced the cash flows is taxes. And so, we've got a $2 increase in cash because we get that tax shield of 20% times the $10 expense. From there, it's simple. It's the perpetuity growth rate method equation. And so, you basically take the cash flow times one plus the growth rate divided by the difference between the WACC and the growth rate. And so, in this case, it's basically two divided by 10%. And so, that increases your terminal value by 20. Now, the mental math here isn't crazy, but in general, when I'm coaching students, I recommend that they do a couple of things to practice their mental math. The first sounds silly, but you remember in school where you did all those times tables and things like that? Time to bust a couple of those out. I know it sounds really ridiculous, but if you can get those fast and accurate, then you're ready for the second thing. The second thing is paper LBOs. Paper leverage buyout models. Now, these are more common in private equity interviews than investment banking interviews, but if you can tear through a 15-minute paper LBO with no mistakes, then you know you're going to be good enough on your mental math to ace a question at an elite boutique like this. So, next up is Lazard, one of the toughest, the biggest, the baddest boutique banks out there. And they've got a question here

### Segment 3 (10:00 - 15:00) [10:00]

on IRR, internal rate of return. Let's read through it. So, let's say that a PE firm is purchasing a company with 100% equity. They've got an 8x EBITDA entry and a 20x exit. What is the IRR going to be over a 5-year period? Now, this is a question that catches a lot of students off guard. This sort of question catches investment banking candidates totally flat-footed because they don't realize that they have to know about LBOs and debt and private equity purchases in investment banking interview. But, as an investment banker, you're advising those PE firms. And so, of course, you have to know about all this stuff. Let's dig into a little bit about what the best answer for a question like this looks like. So, the first thing that I generally recommend is just plugging a number in. Now, this is a tip that helps whenever you get stuck on technicals is just plug a number in because in this question we got 8x EBITDA, we got 20x EBITDA, but like we don't know what the EBITDA is. Let's just pick a number. Let's say it's 100. Make it easy on yourself. And so, if we have 100 of EBITDA, then our entry is going to be 800 and our exit 100 * 2,000 or * 20, which is 2,000. And so, that's going to get us a pretty simple 2. 5x MOIC and the IRR is going to be as a result 20%. So, that's the basic level answer is something like 2. 5x and the 20%. Now, the elite level answer is not actually going to be an answer you give, but the questions that you ask to get there. Because frankly, the way that this question's asked, it doesn't have enough information to answer the question properly. And so, the smartest candidates, they are not just going to jump to conclusions and say, "Oh, it's 2. 5x and a 20% IRR. " They're going to say, "Wait a second. Is there growth? " Because if the EBITDA grows, the MOIC's going to grow and the IRR's going to grow. And so, in this case, I made an assumption saying the EBITDA is flat at 100 or whatever you want it to be. And then, the second thing that they're going to ask is potentially like are there any synergies or is there any uh change to like the revenue growth or the EBITDA margins or do you do any dividends or do you take out like leverage? Like there's a lot of other things that can come up in a leveraged buyout analysis that are going to impact the MOIC and the IRR and only the worst candidates are just going to jump to the conclusions and answer it based off of the information given. A couple other tips here. If this felt easy, try answering this question with leverage. And so, instead of assuming 100% equity, try 50% equity, 50% debt and see where that gets you. And then, the second tip that I'm going to give you here is how to calculate an IRR based on a MOIC. And so, here I said that the MOIC is 2. 5x. And so, you've got to figure out what the IRR equals for that 2. 5x. And unless you're a savant who can just do fractional exponent math in your head, you're going to have to memorize. So, there's three numbers you need to memorize to ace this sort of question. The first is what happens when it's a 2x MOIC. And so, MOIC, that's a 15% IRR in 5 years. When there's a 2. 5x, that's a 20%. And when it's a 3x, it's a 25%. Now, realistically, most interviewers are going to ask you a question that ends up with one of these three numbers over a 5-year period. And if they give you something that's a 4-year or a 6-year or a 2. 6x instead of a 2. 4x or 2. 5x, you've just got to estimate a little bit. And so, for example, let's say that instead of a 2x, it was a 2. 2x. Well, that's probably going to be halfway between 15 and 20%. So, we'll call it like a 17 or maybe 18% IRR. That sort of estimation is going to make you stand out as long as you've got the basics memorized. But again, if you don't have the basics memorized, those three numbers of 20%, 15%, 25%, you're not going to even have a chance to figure out what the IRR is. So, last but not least, is a technical question from Moelis. And if you're looking at this question and it seems intimidating, you're not alone. This is indeed the hardest one that we've looked at so far, but we're going to break it down. We're going to make it seem simple. So, let's read through it together. Let's say that we've got company A buying company B using 40% equity. You've got a share price of $10 and only one share outstanding and net income of $4. So, pretty simple numbers. Company B on the other side has a price of $10, five shares and net income of two. Now, cost of debt for the acquisition is 6%. Tax rate is 40% and there's $1 of after-tax synergies. Is this going to be accretive or dilutive? Now, when I used to get these sort of questions as an interviewee, I was terrified. Accretion-dilution was always like this black box that was really, really scary. But there's a few things that you need to know to be able to break it down. And we're going to talk through the process of figuring out accretion-dilution questions like this so you can repeat it regardless of whether the numbers change and you might even just land your job at Moelis when that happens. So, let's break it

### Segment 4 (15:00 - 20:00) [15:00]

down and see what a tier A answer looks like for a question like this. So, first off, you need to calculate the standalone EPS. That's the first step in any accretion-dilution problem. And so, in this case, we've got to figure out what each of these entities has a standalone EPS. And so, that's pretty simple here where you've got to take the earnings divided by the number of shares and that's going to get you your EPS. And so, in this case, net income of four divided by one share equals $4 per share. Math couldn't be easier. But again, this isn't a math question. This is a concepts question because Moelis is testing, do you understand the concepts, not do you understand how to do 4 / 1. Second piece though is figuring out the pro forma earnings. So, the first step is what is your standalone earnings per share? Second one is what is your pro forma earnings? Not your earnings per share, but your earnings. Don't do both at once. And so, the pro forma earnings here, there's a couple pieces. The first piece is just simply adding up the net income. And so, we've got company A of four, company B of two, $6 of total earnings. But, there's a couple things you can't forget. First part is debt, second part is synergies. Let's talk through each of those. They didn't explicitly say that this deal was funded with debt and equity. They just said it was 40% equity. So, it could be that the remaining 60% was funded by cash, but in this case, usually the interviewers basically waiting for you to ask, "Oh, is the other 60% debt? " And you can assume that probably is in this case because they gave you a cost of debt and tax rate. But, you never want to assume, you want to ask. Well, a lot of candidates make a fool out of themselves by assuming something and not asking the smart questions. Same as we saw with the last question we did together. And so, in this case, you're going to say, "Okay, let's say that we've got 60% of the deal that's done with debt. " Now, it gets a little more complicated cuz we have to figure out what the actual deal value is. And so, in this case, we know that we have a purchase price of $10 a share and five shares. And so, that's where we get the 50 here. And this is really, really important. So, we're taking the target's share price, not your share price, and the target's share count, not your share count, to figure out what the acquisition value is. So, it's 50. Then, we know that 60% of that is debt. And so, 60% * 50 gets us to $30 of debt. But then, we've got to know go a couple steps further. And so, the next piece is we figure out what is the cost that's imposed by taking out that debt. And so, we've got $30 of debt * 6%. And then, we've got to take into account the tax rate. And so, it's 6% * 1 - the tax rate of 40%, which is another 60%. And so, instead of doing 30 * 6% * 0. 6, I'm just going to take 30 * 3. 6%. And so, I'm going to combine the 6% and take 2/3 of that. And so, basically, roughly here, we're getting 30 * 36 or 3. 6% and that's going to be about one. That's a little bit tricky mental math, but the way that I think about it is like 33 * 3 is 100. And so, 36 * 3 is going to be like slightly over 100. So, I'm just going to say it's approximately $1. And we can go back and get that more precise if we realize that it's close in terms of whether it's accretive or dilutive. And we'll see if we need to do that later. So, stepping back a little bit, we're trying to figure out the pro forma earnings. We've got the base earnings. We figured out the impact of debt, which is down by one. But then, we can't forget the synergies. Now, the synergies they gave us here is $1 after tax. Now, that's nice of them because they gave us the after-tax synergies. If pre-tax synergies, we'd need to multiply it by 1 - the tax rate. But in this case, we're saying, "Hey, we've got a dollar of interest expense. synergies. Those kind of just cancel each other out. We're back where we began. It's $6 of earnings. " And so, I just made you go through a ton of stuff, but if you can't go through that for your interviewer, then they're going to ding you even if your answer is correct. And so, some candidates, they'll skip over the debt, synergies, and they'll get the right answer, but they'll fail the question. That's what they don't realize is that sometimes you have to go through the thought process to show that you can even if it doesn't actually end up impacting the question. Now, third part here is the pro forma shares. So, we're almost done here, but we've got to figure out not only what is the earnings do, but what is the shares do in our earnings per share equation? And so, the earnings is six and the pro forma shares is basically going to be the one share that we had outstanding plus however many shares that we issue to get the deal done. So, let's figure that out. How many shares did we issue? Well, if we've got $50 of total deal value and 30 is debt, that means we've got $20 of equity that we're issuing. And if there's $10 per share, then that means that we're getting two new shares. And note that this $10 here is the acquirer's share price. And so, company A's share price of $10, we take 20 divided by company A's share price cuz they're the ones issuing the shares and we get two new shares, meaning that there's three shares total. So, our EPS beforehand was four. Last step here is we'll calculate the

### Segment 5 (20:00 - 21:00) [20:00]

EPS after and compare the two. So, it was four beforehand, and now we've got earnings of six and shares of three. That means our EPS is going to be two. So, it's not even close. It is massively dilutive. It's basically a 50% dilution as a result of this question. And what I will say is if that had been a little closer, then we'd need to go back and calculate exactly what happened with the post-tax cost of debt. But as it is, we got away with pretty simple mental math here. Again, this is a super difficult question. It looks extremely intimidating, but if you remember the process and you get your mental math down, it's actually pretty digestible. And so, just as a reminder, any accretion dilution question, all you have to do is figure out the standalone EPS, figure out the pro forma earnings, share count, and then compare. Hopefully, these questions have been really helpful. These are some of the toughest ones that I've collected as a coach at Wall Street Mastermind over the last several years of student entries. And so, these are real questions and sort of questions that you might encounter when you're doing your elite boutique and bulge bracket interviews. So, if you have any technical interviews coming up with banks like this, or if there was just anything you didn't understand today, go check out some of the resources that we left in the description below. There's tons of good stuff there, and it'll help you get smart on your technicals in no time.