INVESTMENT BANKING PRACTICE EXAM PRACTICE SET ACTUAL STUDY GUIDE EXAM

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INVESTMENT BANKING PRACTICE EXAM PRACTICE SET
ACTUAL STUDY GUIDE EXAM 2026-27 VERSION




100 Questions with Correct Answers and Detailed Explanations

Welcome to this comprehensive investment banking practice exam! Whether you are
preparing for an investment banking interview, a case study, or a certification exam, this
resource covers the core technical knowledge required to succeed in the industry.

This exam is organized into 10 sections, reflecting the key pillars of investment banking
knowledge:

1. Financial Statements & Accounting (Questions 1-10)

2. Valuation Methodologies (Questions 11-20)

3. Discounted Cash Flow (DCF) Analysis (Questions 21-30)

4. Mergers & Acquisitions (M&A) (Questions 31-40)

5. Leveraged Buyouts (LBOs) (Questions 41-50)

6. Comparable Companies & Precedent Transactions (Questions 51-60)

7. Capital Markets & Financing (Questions 61-70)

8. Financial Modeling & Best Practices (Questions 71-80)

9. Quantitative & Logic Questions (Questions 81-90)

10. Deal Process & Advisory (Questions 91-100)

Each question includes:

• A Correct Answer (bolded)

• A Detailed Rationale explaining the underlying concept

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SECTION 1: FINANCIAL STATEMENTS & ACCOUNTING
1. Walk me through the three financial statements.
A) Income Statement, Balance Sheet, and Statement of Retained Earnings
B) Income Statement, Balance Sheet, and Cash Flow Statement
C) Balance Sheet, Cash Flow Statement, and Statement of Shareholders' Equity
D) Income Statement, Cash Flow Statement, and Statement of Changes in
Financial Position
Answer: B) Income Statement, Balance Sheet, and Cash Flow Statement
Explanation: The three major financial statements are the Income Statement,
Balance Sheet, and Cash Flow Statement. The Income Statement shows
revenue, expenses, and net income. The Balance Sheet shows assets, liabilities,
and shareholders' equity, and must satisfy the equation: Assets = Liabilities +
Shareholders' Equity. The Cash Flow Statement begins with net income, adjusts
for non-cash expenses and working capital changes, and shows cash flows from
investing and financing activities.


2. How do the three financial statements link together?
A) Net Income flows into the Cash Flow Statement and Shareholders' Equity
B) Revenue flows into the Balance Sheet
C) Cash flows into the Income Statement
D) They are independent and do not link
Answer: A) Net Income flows into the Cash Flow Statement and Shareholders'
Equity
Explanation: Net Income from the Income Statement flows into Shareholders'
Equity on the Balance Sheet and into the top line of the Cash Flow Statement.
Changes to Balance Sheet items appear as working capital changes on the Cash
Flow Statement, and investing and financing activities affect Balance Sheet
items such as PP&E, Debt, and Shareholders' Equity. Cash and Shareholders'

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Equity on the Balance Sheet act as "plugs," with Cash flowing in from the final
line on the Cash Flow Statement.


3. If you could only look at one financial statement to assess a company's
overall health, which would you choose and why?
A) Income Statement—it shows profitability
B) Balance Sheet—it shows what the company owns and owes
C) Cash Flow Statement—it shows the true cash generation of the business
D) Statement of Shareholders' Equity—it shows ownership changes
Answer: C) Cash Flow Statement—it shows the true cash generation of the
business
Explanation: The Cash Flow Statement gives a true picture of how much cash
the company is actually generating, independent of non-cash expenses. Cash
flow is the most important metric when analyzing the overall financial health of
any business because it reflects the company's ability to generate value, service
debt, and reinvest in operations.


4. If you could only look at two statements to assess a company's prospects,
which two would you choose?
A) Income Statement and Cash Flow Statement
B) Income Statement and Balance Sheet
C) Balance Sheet and Cash Flow Statement
D) Income Statement and Statement of Shareholders' Equity
Answer: B) Income Statement and Balance Sheet
Explanation: You can create the Cash Flow Statement from the Income
Statement and Balance Sheet (assuming you have "before" and "after" Balance
Sheets). The Income Statement provides profitability information, and the
Balance Sheet provides the snapshot of assets, liabilities, and equity. Together,
they allow you to derive cash flows.

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5. What are the major line items on the Income Statement?
A) Cash, Inventory, PP&E, Accounts Payable, Debt
B) Revenue, COGS, SG&A, Operating Income, Pretax Income, Net Income
C) Cash, Accounts Receivable, Inventory, PP&E
D) Net Income, Depreciation, Capital Expenditures, Dividends
Answer: B) Revenue, COGS, SG&A, Operating Income, Pretax Income, Net
Income
Explanation: Key Income Statement line items include Revenue; Cost of Goods
Sold (COGS); Selling, General & Administrative Expenses (SG&A); Operating
Income; Pretax Income; and Net Income.


6. What are the major line items on the Balance Sheet?
A) Revenue, COGS, SG&A, Net Income
B) Cash, Accounts Receivable, Inventory, PP&E, Accounts Payable, Debt,
Shareholders' Equity
C) Net Income, Depreciation, Capital Expenditures
D) Operating Income, Interest Expense, Taxes
Answer: B) Cash, Accounts Receivable, Inventory, PP&E, Accounts Payable,
Debt, Shareholders' Equity
Explanation: Key Balance Sheet line items include Cash; Accounts Receivable;
Inventory; Property, Plant & Equipment (PP&E); Accounts Payable; Accrued
Expenses; Debt; and Shareholders' Equity.


7. What are the major line items on the Cash Flow Statement?
A) Revenue, COGS, SG&A, Net Income
B) Cash, Accounts Receivable, Inventory, PP&E
C) Net Income, Depreciation, Stock-Based Compensation, Changes in Working
Capital, CapEx, Dividends
D) Operating Income, Interest Expense, Taxes