Interview questions
Valuation interview questions for investment banking
Bankers value companies three main ways: comparable public companies, precedent transactions and a discounted cash flow (DCF) analysis. Interviewers ask you to explain each method, when you'd use it and why the results differ, and then test the inputs, especially the discount rate (WACC).
Which valuation questions should you know?
The 3 below are free in Superday Room, each with a short answer, the mistake to avoid and a target time out loud.
What are the three main valuation methodologies, and which gives the highest value?
Comparable public companies (trading multiples of similar listed companies), precedent transactions (multiples paid in past acquisitions) and the DCF (intrinsic value from projected cash flows). Precedent transactions usually give the highest values because acquirers pay a control premium. Comparable companies tend to come in below them, since public trading prices don't include that premium. The DCF is the most variable: it can land highest or lowest depending on the assumptions, especially the terminal value.
Common mistake: Saying precedent transactions give the lowest value.
How do you calculate WACC?
WACC = cost of equity × % equity + cost of debt × (1 – tax rate) × % debt + cost of preferred × % preferred, with the weights based on market values. The cost of equity comes from the CAPM: risk-free rate + beta × equity risk premium. The cost of debt is the company's pre-tax borrowing rate, such as the yield on its debt, multiplied by (1 – tax rate) because interest is tax-deductible.
Common mistake: Using book values for the weights, or describing WACC as the interest rate on the company's debt.
Likely follow-up: Why is the cost of debt usually lower than the cost of equity?
If rates go up, what happens to a company's valuation in a DCF?
Valuation falls, all else equal. A higher risk-free rate raises the cost of equity and the cost of debt, so the WACC rises, and a higher discount rate lowers the present value of the future cash flows and of the terminal value. Higher rates can also hurt the projections themselves, through slower growth and higher interest costs.
Common mistake: Saying a higher discount rate increases the value.
What are the three valuation methods?
Comparable companies, precedent transactions and a discounted cash flow (DCF) analysis: two based on market prices, one on projected cash flow.
| Method | What it uses | Strength | Weakness |
|---|---|---|---|
| Comparable companies | Trading multiples of similar public companies, such as EV/EBITDA and P/E | Based on current market prices; quick | No control premium; true peers are hard to find |
| Precedent transactions | Multiples paid in past acquisitions of similar companies | Reflects premiums buyers actually paid | Data can be old or scarce; each deal had its own circumstances |
| DCF | Present value of projected free cash flow | Intrinsic: doesn't depend on market moods | Very sensitive to assumptions, especially terminal value and the discount rate |
Banks usually show the ranges side by side in a bar chart nicknamed the football field, so a client can see where the methods overlap.
How do you calculate WACC?
Weight the cost of equity and the after-tax cost of debt by their shares of the capital structure, at market values: WACC = E/(D+E) × cost of equity + D/(D+E) × cost of debt × (1 – tax rate).
Say the risk-free rate is 4.0%, the company's beta is 1.2 and the equity risk premium is 5.0%. The CAPM gives a cost of equity of 4.0% + 1.2 × 5.0% = 10.0%. The company borrows at 6.0% before tax and pays a 25% tax rate, so its after-tax cost of debt is 6.0% × (1 – 25%) = 4.5%. If the capital structure is 70% equity and 30% debt at market values:
WACC = 70% × 10.0% + 30% × 4.5% = 7.0% + 1.35% = 8.35%
Interviewers then push on the inputs: why market values and not book values, why the debt cost is after tax, and what happens to WACC as debt rises (cheaper debt at first, then higher costs as the risk of distress grows).
Which firms ask these questions?
In Superday Room's bank, candidates reported 244 valuation questions from interviews at 39 named firms. The firms with the most reports: Evercore (29), Moelis & Co. (28), Citi (20), Bank of America (18), J.P. Morgan (16) and Jefferies (13). These are candidates' reports, counted November 1, 2026. Questions by firm →
Superday Room's full bank has more than 330 valuation questions. The 3 on this page are free to practice out loud; the rest come with the Recruiting Season Pass.