Finance Interview Preparation

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Finance Technical Interview Questions

|Corporate Finance |

• What could a company do with excess cash on the balance sheet? • What’s the difference between IRR, NPV and Payback?
• What are the impacts on earnings if a company builds a new factory using debt? operating lease? capital lease? cash? • Why would a company repurchase its own stock? What signals (positive & negative) does this send to the market? • When would you take a project with a negative NPV?

• What is Sarbanes Oxley and what are the implications?
• Why might a company choose debt over equity financing, or vice versa? • What are the ways a company can manipulate cash flows?
• What are the primary causes of bankruptcy and what are the options available to a company? • Let’s say that I have a bond with a 5% coupon. What happens to the market price when the prevailing interest rates rise to 8%? How are the coupons affected? • Which corporate bond would have a higher coupon, a AAA or a BBB? What are the annual payments received by the owner of a five year zero coupon bond? • Would you rather have $___ today or $1 a day for the rest of your life? How would you go about valuing this amount? • What happens to a company’s equity when assets rise $1 million and liabilities fall $2 million? • What does it mean when cash flow from operations on a company’s cash flow statement is negative? Is this bad news? If so, is it dangerous? • Suppose that you constructed a pro forma balance sheet for a company and the estimate for external funding required was negative. How would you interpret this result? • How will a decrease in financial leverage affect a company’s cost of equity capital, if at all? How will it affect a company’s equity beta? • If you want to assess the health of a company and you could choose between looking at 3 years of income statements or 3 years of balance sheets, which would you choose and why? • What are some reasons why a company might tap the high yield market? • Finance managers today face many challenges in governance and reporting as a result of recent legislation and events.  Given what you know about these recent news events and legislation, what difficulties do you think finance managers are dealing with today?

Valuation

• What are the different ways to value a company?
• Walk me through a DCF valuation. What is free cash flow and how is it calculated? What would you use for a discount rate? How do you determine the terminal value? • How do you calculate WACC?
• What is the formula for CAPM?
• What is beta? How and why do you unlever a beta?
• What is the current market risk premium? What is the current risk-free rate? • What kinds of multiples do you think are most important when valuing a company and why? What are some reasonable ranges for these multiples? • What makes a good comparable company for valuation purposes? • What is the difference between enterprise value and equity value? • Why should the fair market value of a company be the higher of its liquidation value and its going-concern value? • What is an LBO? Why leverage up a firm?

• Lets say I want to value a natural gas pipeline, how would you suggest I do that? What do you think is the appropriate risk free rate to use with this pipeline? How would you finance buying a pipeline like this? • What do you think an investment banker does?

• As a manufacturing firm, assume you are producing at full capacity.  Marketing comes to you with a great new product idea and says the firm needs to begin producing it.  What analysis would you do, and what things would you look at in response to marketing’s request?

Accounting

• Walk me through a typical income statement, balance sheet or cash flow statement. Discuss the inter-relationships between the income statement, balance sheet and cash flow statement. •...
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