Technicals from Prior Interviews

Question 1

Let’s take a British listed company, e.g. BEA Systems, can you calculate the WACC?

Question 2

Take company A and B, they are similar and both trade at 12x EV/ EBITDA, but A has a PE of 20x and B a PE of 15x, how can that be possible?

Question 3

Take the above assumptions, which one has more debt? The one with the higher or lower PE?

Question 4

Can you compare deal activity in a recession vs. in normal times? What’s impact on deal activity and deal value?

Question 5

You have a buyer with a beta of 1.5 and a target with a beta of 1. Is this deal accretive (all share)?

Question 6

You have a buyer with 100 of equity value and a PE of 10x, the target has a PE of 25x and equity value of 50. How much in synergy is necessary for the deal to be neither accretive or dilutive in the case of an all share deal?

Question 7

You have a buyer with 100 of equity value and a PE of 10x, the target has a PE of 25x and equity value of 50. The cost of debt is 5% and tax rate = 40%. Is the deal accretive or dilutive in the case of an all debt deal?

Question 8

You have a buyer with 100 of equity value and a PE of 10x, the target has a PE of 25x and equity value of 50. How much in synergy is necessary for the deal to be neither accretive or dilutive in the case of an all cash deal?

Question 9

You have company with Net Debt/ EBITDA of 10x and EBITDA of 10. You sell a subsidiary that has EBITDA of 2 and Net Debt/ EBITDA of 8x. What’s the impact on leverage ratio of company?

Question 10

You have company with Net Debt/ EBITDA of 10x and EBITDA of 10. You sell 70% a subsidiary that has EBITDA of 2 and Net Debt/ EBITDA of 8x. What’s the impact on leverage ratio of company?

Question 11

You are an associate, the VP walks in to tell you that we have a meeting with the CFO of a large listed company. What do you put in the document for the meeting with the CFO?

Answer 11

1. Macro takes (inflation, interest rates, recent transactions)
2. Valuation update (broker reports, own valuation)
3. Strategic options (targets, potential divestures, financing, any solutions from sales & trading)
4. Other considerations (does an LBO work on them? Hostile takeover, Activism, etc.)
5. Financial update: liquidity ratios from bank’s perspective

Question 12

Hard Paper LBO: EBITDA 100, Capex = D&A = 20, Debt is 200, Tax rate of 20%. Now PE firms buys company, levers it to 5x at a 3.5% cost of debt, exits after 5 years at 12x multiple with a 15% IRR. Give me the EV (sources of funds) and the purchase price of equity?

Question 13

You have a company worth $1bn. 100 million a year FCF. Company is stable and low growth. You sell for 1bn. How would you make money?

Question 14

You have 100 million of bank debt and 5% pre-tax interest. Would you take out debt to buy back your shares if your P/E=20?

Question 15

You have EBITDA of 100 and EV/EBITDA multiple of 10. Net Debt/EBITDA is 5. What is the equity value? And what is the firm’s P/E ratio?