Before going to an investment banking interview, it would be important to be prepared. Better research on what the interviewer will ask so you will know what to answer. If the interviewer asks something and you are suddenly speechless, that will lead to your downfall. It would be useless to stall time and say “uhh..” for a few seconds. Here are some common investment banking interview questions to keep in mind:
What is the formula for the cost of equity?
It is one of the most common questions in interviews for an investment banking position. However, a lot of people still get this wrong no matter how simple it is. There is actually a few formulas and all of them are correct.
Is the cost of debt higher than the cost of equity?
This is one of those trick questions that you should not answer immediately. Better give it a few thoughts before giving a smart answer. No matter how you look at the two costs, the cost of equity will always come out higher. The interviewer will give you a strange look if you answer the cost of debt is higher. For more in-depth info about investment banking interviews, check out Wall Street Mastermind.
What is your perception of a company with poor cash flow?
The immediate answer here would be the company is not doing good. Better do better than that and tell the interviewer what type of approach would be necessary. Remember, an investment banker would answer the question differently from a normal person.
For a revenue multiple, what is normally the numerator?
The purpose of this question is for the interviewer to find out whether you know the difference between enterprise value and equity value. If you know the difference between the two values, you will most likely realize the answer to the question is enterprise value. Of course, it will be the other one if you’re not familiar with the difference.