DB Interview Question - screwed me up

Isn't it just one dollar?

It's $0.

EV = Equity + Preferred + Debt + MI - Cash

Call the $1 equity, and the formula works out as: 1+0+0+0-1 = $0.

Think of it as if you were starting a lemonade shop with no debt and $1 in equity, which you keep as cash on hand in the register

0

reminded me of "The Office" when Michael is understanding what a "Surplus" is...

That's an excellent question. Does anyelse have any more IBD-esque brain teasers?

Thanks.

Just my 2c.

Say you sell me $1 for $1. Net-net, it cost me $0.

An alternative way to look at this question would be to look at the cash flow of the $1 as a "business." The business generates $1, immediately, and that's it.

I don't think there is a truly correct way to answer this question, as long as you demonstrated some financial knowledge and / or creative thinking you'll probably be just fine.

~~~~~~~~~~~ CompBanker

tth7:

I was asked this question today in an DB interview. "What is the enterprise value of one dollar". How the hell do you answer that? I didn't even know how to start.

I agree that there is probably not one correct way to answer. But here's my take.... the idea of removing cash from EV is that it effectively nets out debt/equity. Ie, you use the cash you get from the purchase to pay down the market value of the securities held by various constituents in the capital structure. If you assume there is no equity/debt, then there is nothing to net out. Hence the EV would be a dollar, because that dollar goes to you.

You could argue it's implied that the dollar is owned by someone and hence has equity. In that case the EV is zero. However, that's assuming the equity is (properly) valued at one dollar.

j

tth7:

I was asked this question today in an DB interview. "What is the enterprise value of one dollar". How the hell do you answer that? I didn't even know how to start.

I agree that there is probably not one correct way to answer. But here's my take.... the idea of removing cash from EV is that it effectively nets out debt/equity. Ie, you use the cash you get from the purchase to pay down the market value of the securities held by various constituents in the capital structure. If you assume there is no equity/debt, then there is nothing to net out. Hence the EV would be a dollar, because that dollar goes to you.

You could argue it's implied that the dollar is owned by someone and hence has equity. In that case the EV is zero. However, that's assuming the equity is (properly) valued at one dollar.

j

does anyone know what the DB email address is. I was trying to email alumni at db and all of the emails were rejected. Is it [email protected]? Thanks

yeah that's the email convention, first.last@DB.com

EV = Equity + Preferred + Debt + MI - Cash

2 = Equity ($1) + Debt ($1) - Cash ($0)

or

0 = Equity ($1) + Debt ($0) - Cash ($1)