Question
Conversational Answer
Walk me through your deal
Sure. I worked on a [type of deal—like a sell-side M&A in the consumer space]. The company wanted to explore strategic options, and my main role was supporting the valuation and marketing materials. I built the comps and precedent transactions, helped prepare the CIM, and worked with the team to refine management presentations. Ultimately, the deal closed at a solid premium, which was rewarding to see end to end.
What is WACC?
The formula is: Cost of Equity * (% Equity) + Cost of Debt * (% Debt) * (1 – Tax Rate) + Cost of Preferred * (% Preferred).
In all cases, the percentages refer to how much of the company’s capital structure is taken up by each component.
For Cost of Equity, you can use the Capital Asset Pricing Model (CAPM – see the next question) and for the others you usually look at comparable companies/debt issuances and the interest rates and yields issued by similar companies to get estimates.
How would you decrease WACC?
You could lower WACC by reducing business risk, taking on cheaper debt, or optimizing the capital structure. For example, improving your credit profile brings down the cost of debt, while building more stable and predictable earnings lowers the cost of equity. Adding some leverage can also help because of the tax shield on interest, up to a point.
Walk me through a DCF
You start by projecting the company’s unlevered free cash flows for about five to ten years. Then you calculate a terminal value — either using a perpetuity growth method or an exit multiple. Discount all those cash flows back to the present using WACC to get enterprise value, then subtract net debt to get equity value, and divide by shares outstanding to get the implied share price.
Why do you subtract cash when calculating EV?
Because enterprise value represents the value of a company’s core operations. Cash isn’t part of operations — it’s non-operating and can be used to pay down debt or returned to shareholders. So we subtract it to avoid double-counting it in equity value.
How do you get to free cash flow?
You start with EBIT, tax-effect it to get NOPAT, then add back non-cash items like D&A, subtract CapEx, and adjust for changes in working capital. That gets you unlevered free cash flow — the cash available to all investors in the business.
Why do you add back D&A to free cash flow?
Because D&A are non-cash expenses. They lower accounting profit but don’t affect actual cash flow. We add them back since CapEx already accounts for real cash spending on assets.
Walk a $100 intangible asset write-down through the 3 statements
Sure. On the income statement, you record a $100 impairment expense — that reduces pre-tax income by $100. Assuming a 40% tax rate, net income falls by $60. On the cash flow statement, you add back the $100 non-cash charge under operating activities, so cash increases by $40 (the tax shield). On the balance sheet, cash is up $40, intangibles down $100, and retained earnings down $60 — everything balances.
Company A has a P/E of 10 and Company B has a P/E of 20 — accretive or dilutive (all-stock deal)?
If Company A, the acquirer, has a P/E of 10 and it’s buying Company B with a P/E of 20 in an all-stock deal, it would be dilutive — because A is paying with more expensive stock for a company that has a higher valuation multiple relative to its earnings.
What would the interest rate need to be to make it accretive in an all-debt deal?
In an all-debt deal, you’d compare the after-tax cost of debt to the target’s earnings yield, which is the inverse of its P/E. If B’s P/E is 20, its earnings yield is 5%. So the deal would be accretive as long as the after-tax interest rate on the debt is below 5%.
A company sells $100 of stock — what’s the EV and EqV?
Equity Value increases by $100 because you’ve issued new shares and raised cash. Enterprise Value stays the same because the $100 of new cash offsets the $100 increase in equity — cash is a non-operating asset.
How do you value a parking garage?
You’d use a mix of methods — a DCF based on parking fees and occupancy rates, comparable property sales, and cap rate analysis based on NOI. In short, you’d project cash flows, divide by an appropriate cap rate, and adjust for location and asset condition.
Walk revenue to FCF
Start with revenue, subtract COGS and operating expenses to get EBIT. Tax-effect EBIT to get NOPAT. Then add back D&A, subtract CapEx, and adjust for changes in working capital to get unlevered free cash flow.
Walk me through an LBO
An LBO is when a private equity firm buys a company mostly using debt. They put in some equity, borrow the rest, and use the target’s cash flows to pay down debt over time. The goal is to improve operations, pay down debt, and sell the company later at a higher multiple — creating returns from leverage and multiple expansion.
Why would a PE firm still do an LBO even if interest rates are decreasing?
Even with lower rates, LBOs can still be attractive because cheap debt can actually increase returns — it lowers financing costs. Plus, PE firms focus on operational improvements and multiple expansion, not just rate direction, so they’ll still pursue deals if they see strong value creation potential.
Walk Me Through Your Deal
Briefly describe company, industry, and transaction type. Explain your role (valuation, comps, modeling) and the outcome.
Example: Worked on a sell-side M&A for a mid-market consumer company, built comps, CIM, and helped close the sale at a premium.
WACC
The formula is: Cost of Equity * (% Equity) + Cost of Debt * (% Debt) * (1 – Tax Rate) + Cost of Preferred * (% Preferred).
In all cases, the percentages refer to how much of the company’s capital structure is taken up by each component.
For Cost of Equity, you can use the Capital Asset Pricing Model (CAPM – see the next question) and for the others you usually look at comparable companies/debt issuances and the interest rates and yields issued by similar companies to get estimates.
How Would You Decrease WACC
• Lower cost of debt (improve credit profile)
• Lower cost of equity (reduce risk)
• Optimize capital structure (more debt for tax shield)
• Improve investor confidence (transparency, stability)
DCF
- Project unlevered FCFs for 5–10 years
- Calculate terminal value (Gordon Growth or Exit Multiple)
- Discount FCFs + TV using WACC
- Sum to get Enterprise Value
- Subtract net debt → Equity Value
- Divide by shares → Implied price
Why Subtract Cash in EV
Enterprise Value measures core operations. Cash is non-operating and can pay debt or be distributed. Subtracting cash avoids double counting.
How to Get to FCFs
Unlevered FCF = EBIT*(1–T) + D&A – CapEx – ΔNWC
Steps:
1. Start with EBIT
2. Subtract taxes → NOPAT
3. Add back D&A
4. Subtract CapEx and change in working capital
Why Add D&A Back to FCFs
D&A are non-cash expenses that reduce accounting profit but not cash. Added back to reflect actual cash flow since CapEx already captures the outflow.
How’s the Market Doing?
Provide a concise macro snapshot — mention recent equity market direction, key drivers (earnings, inflation data, geopolitical risks), and investor sentiment trends.
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