Q1
Walk me through how you would build a three-statement financial model for a leveraged buyout (LBO). What are the key assumptions you would stress-test, and how would changes in leverage ratios affect the IRR?
Why they ask this:* LBO modeling is a core competency for investment bankers. This tests your understanding of debt mechanics, cash flow dynamics, and ability to demonstrate financial acumen with a tool you use daily.
Q2
Explain the difference between an accretion/dilution analysis and a comparable company valuation. When would you use each approach in an M&A advisory context, and what are their limitations?
Why they ask this:* This assesses whether you understand multiple valuation methodologies and can articulate when each is most appropriate—a critical skill for advising clients on deal pricing and structuring.
Q3
A client is evaluating a potential acquisition with a purchase price of $500M. Walk me through how you would calculate the pro forma net debt, and what adjustments would you need to make for working capital and transaction costs.
Why they ask this:* This tests practical deal modeling experience and your ability to understand deal dynamics beyond the headline purchase price, including hidden costs and balance sheet impacts.
Q4
Describe the mechanics of a bond offering, including how credit spreads are determined, and explain the relationship between interest coverage ratios and a company's ability to raise debt capital.