IB Interview Prep
About this lesson
‼️Investment Banking Interview Question‼️ Monday → EV: $500M | Debt: $200M | Cash: $50M Tuesday → Generates $10M cash from operations Wednesday → Uses $25M cash to repurchase shares Thursday → Borrows $30M to pay a special dividend Friday → What’s the Enterprise Value? What’s the Equity Value? Most candidates can handle one EV event. Stack three back to back and watch them second guess everything. 👇 Full Explanation 👇 First, establish your starting Equity Value on Monday. Equity Value = EV − Debt + Cash = $500M − $200M + $50M = $350M Now walk through each day. ✅ Tuesday: $10M cash from operations The business generates $10M of cash. That cash belongs to the owners. It goes to the balance sheet but doesn’t change the purchase price of the underlying business. EV: $500M (unchanged) Cash: $50M → $60M Equity Value: $350M → $360M ✅ Wednesday: $25M share repurchase The company uses $25M of cash to buy back stock. Cash goes down. Equity Value goes down by the same amount. Net Debt goes up by the same amount. The offsets cancel. EV: $500M (unchanged) Cash: $60M → $35M Equity Value: $360M → $335M ✅ Thursday: Borrows $30M, pays a special dividend The company borrows $30M and immediately pays it out as a dividend. Cash doesn’t change because it came in from the lender and went right back out to shareholders. Debt goes up $30M. Equity Value goes down $30M. The offsets cancel again. EV: $500M (unchanged) Debt: $200M → $230M Equity Value: $335M → $305M 💡 Final Answer: Enterprise Value = $500M. It never changed. Not on Tuesday. Not on Wednesday. Not on Thursday. Equity Value = $305M None of these events change what someone would pay to buy this business outright. They only shift the mix between what belongs to the owners and what’s owed to the lenders. That’s all Enterprise Value really is: the purchase price of the business. Capital structure changes and cash movements don’t change it. Follow @FinanceableTraining to master tricky EV concepts for IB
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