Question about investment banking interviews and calculating present value.
I'm an incoming freshman at a super competitive target/semi-target (Stern/Duke/Cornell) where clubs matter a lot. I've been doing some accounting/investing/valuation prep (BIWS, reading books, etc), and to be honest it's all super easy stuff to understand and be able to explain intuitively in a personally branded way as I will be asked in club interviews, but the one question I had is will I be asked (if not in club interviews then later) to discount future cash flows to present value in my head/quickly on paper? I've never been super good at math, had to study pretty hard to get a 770 on my SAT math, and unless there are some tricks I'm missing, I think I would struggle with this... esp when it gets to some bs like 254/(1.08^3).
Also, I going out and drinking plenty of beer, so no worries.
Based on the most helpful WSO content, it's unlikely you'll be asked to calculate something like $$254/(1.08^3)$$ in your head or quickly on paper during club interviews or even later in investment banking interviews. The focus in these interviews is typically on your understanding of the concepts, not your ability to perform complex calculations under pressure.
For example, when discussing Discounted Cash Flow (DCF) analysis, interviewers are more interested in whether you can explain the process clearly and logically. This includes projecting free cash flows, determining the terminal value, and discounting these to the present value using an appropriate discount rate like WACC. The actual math is usually done using Excel or financial calculators in real-world scenarios.
However, it’s still a good idea to familiarize yourself with the mechanics of discounting cash flows and practice some basic calculations to build confidence. For instance: - Understand the formula: $$PV = \frac{CF}{(1 + r)^n}$$ - Practice with simpler numbers to get comfortable with the process. - Learn to approximate or estimate results for quick mental checks (e.g., knowing that $$1.08^3$$ is slightly above 1.25).
Ultimately, your ability to explain the intuition behind the math and the reasoning for using specific inputs (like WACC or growth rates) will matter far more than raw calculation speed. Keep focusing on building a strong conceptual foundation, and you'll be well-prepared for both club and job interviews!
Sources: Why YOU Aren't Converting Your Interview - DCF Example (No Math), Notes for Technical Interview Questions, Investment Banking Interview Questions - 15 Answers to Land the Job, DCF Modeling Course ~ Pre-training text.pdf, Why YOU Aren't Converting Your Interview - DCF Example (No Math)
Its wraps cuz the kid who isnt going out and drinking lots of beer is going to mog you
Yes, this is verbatim a question I got on an interview:
Company has an EV of 250m, they later found out they understated their capex by $20m in year 2, 10% wacc, what is the impact on valuation.
Not solvable without knowing the PGR or terminal multiple or at least EBITDA to make a reasonable assumption.
Jesus man you need to study your technicals.
You’re right, I had initially assumed misread as $20 impact from year 2 onwards. Since it’s a one off in year 2, impact to EV is $20 / (1+0.1)^2 ≈ $16.5m
Even if it was year 2 onwards it’s just [-20/.01]/(1.1)^2 - NPV of lost cash flow into perpetuity after year 2 discounted to year 0
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