Bank of America IB Interview Questions

I'd use three core methodologies—comparable companies analysis for market-based relative value, precedent transactions for M&A-based value including a control premium, and a DCF for intrinsic value based on projected free cash flows—then triangulate the ranges on a football field chart.

Net income increases $40mm, cash increases $140mm, and total assets and shareholders' equity each increase $40mm. The gain is $50mm: the $150mm sale price less the $100mm book value, which is what the asset is carried at on the balance sheet after accumulated depreciation. At a 20% tax rate that gain adds $40mm to net income and sends $10mm out the door as tax. Cash picks up the full $150mm of proceeds less that $10mm. The balance sheet still balances, because cash is up $140mm while the PP&E line comes off at its $100mm book value.

At inception, PP&E and debt each rise by $500 with no income statement impact; each subsequent year, $100 depreciation and $50 interest reduce net income by $112.50 (after 25% tax), while cash falls $12.50 as the non-cash depreciation add-back only partly offsets the cash interest.

NOI (Net Operating Income) is a property's effective gross income minus operating expenses, excluding debt service, capital expenditures, depreciation, and income taxes—representing the pure cash profit from operations that drives valuation and debt sizing.

We're in a late-cycle environment with the Fed holding rates elevated amid sticky services inflation, which compresses leveraged deal activity and widens bid-ask spreads, but creates opportunities in restructuring and sectors with durable pricing power like healthcare and defense.

Term loans are usually senior secured: lenders have first claim on specific company assets. They pay a floating rate, can typically be repaid early with little penalty, and are bought mainly by banks (Term Loan A) and CLOs (Term Loan B). High yield bonds are usually unsecured or junior. They pay a fixed coupon, run longer, and are protected against early repayment. Because they sit lower in the capital structure and cost more, their main buyers are high yield bond funds, insurance companies, pension funds, and hedge funds.

NOI (Net Operating Income) is a property's total revenue minus operating expenses, measuring its cash-generating ability from operations; depreciation is not included because it is a non-cash accounting charge, not an actual operating expense.

An IPO pitch book typically starts with why hire us — bank credentials, relevant IPO track record, and team — then covers equity market conditions and IPO window, the company’s equity story and peer positioning, valuation using trading comps / precedent IPOs (and sometimes DCF as a sanity check), proposed offering structure, investor targeting, execution timeline, and syndicate recommendations. If appropriate, the bank may discuss pricing at a discount to public trading comps to support demand and aftermarket performance, but that is not a fixed rule.

WACC has risen roughly 200-300+ bps since 2021, driven primarily by the ~275 bps increase in the risk-free rate flowing through to both the cost of equity (via CAPM) and cost of debt, compounded by a shift toward equity-heavier capital structures.

Project unlevered free cash flows for 5–10 years, calculate a terminal value, discount both back at WACC to get enterprise value, then subtract net debt and other claims to arrive at implied equity value per share.

I'd pitch Costco: a membership-based retailer with a self-reinforcing flywheel of low prices, >90% renewal rates, strong ROIC, international expansion catalysts, a premium but defensible valuation, and margin-compression risk worth monitoring.

The capital ratio measures capital against risk-weighted assets, rewarding safe holdings, while the leverage ratio measures capital against total unweighted assets, penalizing balance-sheet size regardless of risk—so holding safe, low-risk-weight assets helps one ratio but hurts the other.