Investment Banking Questions
("Basic" Technical Only) Questions
and Answers | Latest Version |
2025/2026 | Correct & Verified
How is enterprise value calculated?
✔✔ Market value of equity plus debt minus cash
What is market capitalisation?
✔✔ Share price multiplied by number of outstanding shares
What does EBITDA stand for?
✔✔ Earnings before interest, taxes, depreciation, and amortisation
Why is EBITDA commonly used in valuation?
✔✔ It approximates operating cash flow
What is a comparable company analysis?
✔✔ Valuing a firm using similar publicly traded companies
What is a precedent transaction analysis?
✔✔ Valuing a company using past M&A deals
1
,What is a DCF analysis?
✔✔ A valuation based on projected future cash flows
What does DCF stand for?
✔✔ Discounted cash flow
Why are future cash flows discounted?
✔✔ Money today is worth more than money in the future
What rate is used to discount cash flows in a DCF?
✔✔ Weighted Average Cost of Capital (WACC)
What does WACC represent?
✔✔ The company’s average cost of financing
What are the main components of WACC?
✔✔ Cost of equity and cost of debt
What are the two main divisions of investment banking?
✔✔ Advisory and capital raising
What does M&A stand for?
2
,✔✔ Mergers and acquisitions
What is an IPO?
✔✔ The first sale of a company’s shares to the public
Why do companies issue equity?
✔✔ To raise capital without taking on debt
What is debt financing?
✔✔ Raising capital by borrowing money that must be repaid
What is enterprise value?
✔✔ The total value of a company including debt and equity
What is cost of equity?
✔✔ The return required by equity investors
How is cost of equity commonly estimated?
✔✔ Using the Capital Asset Pricing Model (CAPM)
What does CAPM stand for?
✔✔ Capital Asset Pricing Model
3
, What is beta?
✔✔ A measure of a stock’s volatility relative to the market
What does a beta greater than 1 indicate?
✔✔ Higher risk than the market
What is free cash flow to the firm (FCFF)?
✔✔ Cash available to all capital providers
What is terminal value in a DCF?
✔✔ The value of cash flows beyond the forecast period
Why is terminal value important?
✔✔ It often represents a large portion of total valuation
What is leverage?
✔✔ The use of debt to finance a company
What is a leveraged buyout (LBO)?
✔✔ Acquiring a company using significant debt
4
("Basic" Technical Only) Questions
and Answers | Latest Version |
2025/2026 | Correct & Verified
How is enterprise value calculated?
✔✔ Market value of equity plus debt minus cash
What is market capitalisation?
✔✔ Share price multiplied by number of outstanding shares
What does EBITDA stand for?
✔✔ Earnings before interest, taxes, depreciation, and amortisation
Why is EBITDA commonly used in valuation?
✔✔ It approximates operating cash flow
What is a comparable company analysis?
✔✔ Valuing a firm using similar publicly traded companies
What is a precedent transaction analysis?
✔✔ Valuing a company using past M&A deals
1
,What is a DCF analysis?
✔✔ A valuation based on projected future cash flows
What does DCF stand for?
✔✔ Discounted cash flow
Why are future cash flows discounted?
✔✔ Money today is worth more than money in the future
What rate is used to discount cash flows in a DCF?
✔✔ Weighted Average Cost of Capital (WACC)
What does WACC represent?
✔✔ The company’s average cost of financing
What are the main components of WACC?
✔✔ Cost of equity and cost of debt
What are the two main divisions of investment banking?
✔✔ Advisory and capital raising
What does M&A stand for?
2
,✔✔ Mergers and acquisitions
What is an IPO?
✔✔ The first sale of a company’s shares to the public
Why do companies issue equity?
✔✔ To raise capital without taking on debt
What is debt financing?
✔✔ Raising capital by borrowing money that must be repaid
What is enterprise value?
✔✔ The total value of a company including debt and equity
What is cost of equity?
✔✔ The return required by equity investors
How is cost of equity commonly estimated?
✔✔ Using the Capital Asset Pricing Model (CAPM)
What does CAPM stand for?
✔✔ Capital Asset Pricing Model
3
, What is beta?
✔✔ A measure of a stock’s volatility relative to the market
What does a beta greater than 1 indicate?
✔✔ Higher risk than the market
What is free cash flow to the firm (FCFF)?
✔✔ Cash available to all capital providers
What is terminal value in a DCF?
✔✔ The value of cash flows beyond the forecast period
Why is terminal value important?
✔✔ It often represents a large portion of total valuation
What is leverage?
✔✔ The use of debt to finance a company
What is a leveraged buyout (LBO)?
✔✔ Acquiring a company using significant debt
4
