Investment Banking Follow Up Questions

investment banking interview questions answer

Here’s a breakdown of follow-up questions in an investment banking interview, formatted in HTML:

Following an initial answer in an investment banking interview, interviewers often probe deeper with follow-up questions. These aim to assess not just your knowledge, but also your critical thinking, problem-solving abilities, and practical application of concepts.

Valuation Follow-Up Questions

Scenario: You’ve just explained a discounted cash flow (DCF) analysis.

The Follow-Up: “Okay, you’ve projected free cash flows for five years. What are the key assumptions driving those projections, and how sensitive is your valuation to changes in those assumptions? Which assumptions are most crucial?”

Why it Matters: This goes beyond rote memorization. They want to know if you understand the drivers of value and can assess risk.

The Follow-Up: “Let’s say the company is expected to grow at 3% in perpetuity. How does that compare to the long-term growth rate of the overall economy? Is that sustainable? What adjustments might you consider?”

Why it Matters: This probes your understanding of economic fundamentals and the reasonableness of your assumptions.

The Follow-Up: “You used a WACC of 8%. Walk me through the components of WACC, and how you arrived at your cost of equity. What are the limitations of using CAPM to calculate the cost of equity?”

Why it Matters: This tests your understanding of the weighted average cost of capital (WACC) and its underlying assumptions, including the Capital Asset Pricing Model (CAPM).

The Follow-Up: “You’ve arrived at a valuation range using DCF, precedent transactions, and comparable companies. The ranges overlap, but there are discrepancies. How would you reconcile these differences and arrive at a final valuation opinion?”

Why it Matters: This assesses your judgment and ability to synthesize information from multiple sources.

M&A Follow-Up Questions

Scenario: You’ve discussed the strategic rationale behind an acquisition.

The Follow-Up: “What are some potential synergies that could result from this deal? How would you quantify those synergies, and what are the risks to realizing them?”

Why it Matters: This tests your ability to identify and quantify the benefits of a merger, and your awareness of potential pitfalls.

The Follow-Up: “What are the different methods of financing an acquisition? What are the advantages and disadvantages of each?”

Why it Matters: They want to see you understand the capital structure implications of M&A deals.

The Follow-Up: “Let’s say the acquirer is paying a significant premium for the target. What are some reasons why they might be willing to do that?”

Why it Matters: This checks your understanding of deal dynamics and motivations.

The Follow-Up: “Walk me through the typical timeline of an M&A transaction from initial contact to closing.”

Why it Matters: Assesses knowledge of the overall M&A process.

Market Knowledge Follow-Up Questions

Scenario: You’ve shared your views on a recent market event.

The Follow-Up: “How do you think this event will impact specific companies in a particular industry? Which companies stand to benefit, and which are most at risk?”

Why it Matters: They are testing your ability to connect macro events to micro-level business implications.

The Follow-Up: “What are the potential unintended consequences of this event?”

Why it Matters: This demonstrates your capacity for critical and nuanced thinking.

Remember to always back up your answers with logical reasoning and examples. Demonstrating a strong grasp of fundamental concepts is crucial, but equally important is showing your ability to think critically and apply your knowledge to real-world scenarios.