Compilation of tough technicals/behaviorals you've experienced so far

hopeful123's picture
Rank: Orangutan | 310

Boys,

hope youve all been grinding away during this rough time. remember, tough times dont last, tough people do. Thought it might be a good idea to just make a compilation of what tough interview questions youve faced so far, I've found it helps to isolate the tough questions from the prep guides so that you're not just zoned in for the moment and really have the concepts nailed down at a moment's notice

What I've seen so far:

Whats the beta of a slot machine?

does cost of debt ever exceed the cost of equity?

Comments (18)

Sep 19, 2017

Shouldn't cost of equity usually exceed cost of debt?

Sep 19, 2017

woops, wrote it backwords

Sep 19, 2017

Answer is no btw. As the company takes out more and more debt, CoD increases due to risks of bankruptcy. The caveat of this is that while this makes it seem like CoD will soon pass CoE, CoE also feels the effects of debt (found in levered beta) and thus will also start to increase

Sep 19, 2017
hopeful123:

Whats the beta of a slot machine?

Beta is based on correlation. What would be the "standard" for a slot machine? I don't think this question can be answered.

What I've seen:

  • Is it fair to use a LBO to value a public company? (LBOs on resume)
    I panicked in the moment, but think the answer is no because you're changing the cap structure and influencing how they run operations with a LBO; a public investment in the company would have none of that
Best Response
Sep 20, 2017

Question can be answered simply. Beta of a slot machine is 0. Beta is essentially the covariance of (x,y) / variance (x). Slot machines and the market are not correlated at all - slot machine outcomes are stochastic and not tied to market performance in any way. Received this question in various froms different EBs during my OCR (one was like beta of a biotech company that's dependent on trial results, similar idea).

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Sep 20, 2017

You could make an argument that Beta would be positive. Slot machines are meant to make a profit, so the expected value of each pull is positive (for the owner of the slot machine). If the market is doing well (and the economy in general is doing well), more people will use their higher discretionary income on things like gambling, so a slot machine will make more profit.

I think a question like this doesn't necessarily have a right answer as long as you reason appropriately.

Sep 20, 2017

Why wouldn't you use an LBO to value a public company? LBOs allow you to figure out what a financial buyer would ostensibly pay - who cares if the target is public or private.

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Sep 20, 2017

Almost positive @dalailama is correct here. You can use an LBO to value a publicly traded company because you are changing your strategic acquiring firm's (not a PE firm most likely as very few can afford to buy publicly traded companies) debt structure. You also are going to be determining the feasible price per share because even though the share price is public, you will buy at a control premium.

Sep 20, 2017

When it comes to questions about valuing random things, would you essentially walk them through each method and address the potential drawbacks of any?

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Sep 20, 2017

You could also argue that cost of debt can exceed cost of equity in all company forms that are not limited, like partnerships etc.

Sep 20, 2017

"How would you value Halal Guys?" - Moelis SA interview.

Sep 20, 2017

Lol this is literally how do you value an apple tree (or some other variation) question except a little more complex/specific.

Sep 20, 2017

Clearly, the answer is "Over. I would over-value halal guys. Where do I sign?"

Sep 20, 2017

Pretty easy once you've thought it through, but caught me off guard in one interview: What's the mathematical condition that has to hold for a dividend recap to increase IRR?

Sep 20, 2017

Is it roc > after tax cost of debt? As long as you have no net outflows after the div. recap then IRR increases.

Sep 21, 2017
Comment
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