Preview Questions Investment Banker | Role Specific Skill

Question 1: How do you handle depreciation in a financial model?

Which action should you take?

Choose only one option

By subtracting it from revenue in the cash flow statement

By adding it back to cash flow in the operating section

As a deduction from total assets in the balance sheet

As an operating expense in the income statement

Question 2: What does the price-to-earnings (P/E) ratio primarily indicate in the valuation of a company?

Which action should you take?

Choose only one option

The total debt obligations of a company relative to its market price

The profitability of a company based on its capital expenditure

The relationship between the company's stock price and expected future earnings

The relationship between a company's market value and its historical earnings

Question 3: How does a change in interest rates typically impact a discounted cash flow (DCF) model?

Which action should you take?

Choose only one option

It increases the weighted average cost of capital (WACC)

It decreases the terminal value of the company

It decreases the cost of equity

It has no significant impact on the final valuation

Question 4: Which of the following regulations focuses on ensuring that consumer protection is central to the financial services industry?

Which action should you take?

Choose only one option

General Data Protection Regulation (GDPR) protecting consumer privacy in financial transactions

MiFID II requiring enhanced disclosure for investment products

Basel IV to provide safeguards for retail investors in the banking sector

Consumer Financial Protection Bureau (CFPB) under Dodd-Frank

Question 5: What does "leveraged buyout (LBO)" mean in M&A transactions?

Which action should you take?

Choose only one option

A takeover where the acquiring company purchases only assets

A deal where the target company's stock is sold at a premium

A merger between two firms to increase market share

A financial transaction where the buyer uses a significant amount of borrowed money to meet the cost of the acquisition

Question 6: In a three-statement model, how are the balance sheet and income statement linked?

Which action should you take?

Choose only one option

Through depreciation and changes in working capital

By linking revenues to equity

Through the net income being added to equity

By netting debt and equity on the asset side