Jefferies IB Interview Questions

Assuming the same discount rate, enterprise value is the same for both. A's equity value (the part of the company that belongs to shareholders) is most likely lower by A's net debt, a figure these numbers do not give you. Enterprise value (the value of the whole business to lenders and shareholders together) comes from unlevered free cash flow, the cash the operations produce before any payment to lenders. Both companies produce 100. The 5 gap to levered free cash flow (the cash left for shareholders after paying lenders) is money going to A's lenders, so A carries debt. Equity value equals enterprise value minus net debt (debt minus cash), so A's shareholders own less by the debt balance, not by the 5.

You use the same three approaches—trading comps, precedent transactions, and DCF—but with a key simplification: if the company has no net debt and no other non-equity claims, Enterprise Value equals Equity Value. In a DCF, WACC becomes the cost of equity because there is no debt in the capital structure. Since the company is private, you also need to think carefully about marketability/control adjustments depending on the valuation context rather than automatically applying a blanket illiquidity discount.

Typically five to ten years. Five is the standard for a stable, mature business. That is about as far out as revenue, margin and capex estimates still hold up with real support behind them. You extend toward ten when the company needs longer to settle into a normal run rate: a high-growth name still scaling, or a cyclical you want to carry through a full cycle. Everything past the final forecast year sits in the terminal value, one lump-sum figure that covers all the cash flows after the explicit window.

Mega-cap tech looks reasonably valued given strong FCF yields competitive with risk-free rates, but unprofitable growth and AI-adjacent names still embed significant duration risk in a 4-5% rate environment, so you have to segment the market.

In an LBO, a private equity firm buys a company mostly with borrowed money. Returns rise when the equity is worth more at exit than what the firm put in. The three core levers are growing EBITDA (earnings before interest, taxes, depreciation and amortization, a proxy for operating cash profit), selling at a higher valuation multiple than you paid, and using the company's free cash flow to pay down debt. You can also lift returns by paying a lower entry price, by using more debt (if the business earns more than the debt's after-tax cost and can safely carry it), or by getting cash back to the sponsor sooner.

Sign an engagement letter, conduct due diligence and valuation, prepare marketing materials (teaser and CIM), contact potential buyers, collect IOIs, run a second round with management presentations and a data room, negotiate final bids, sign a definitive agreement, and close.

Tech is bifurcating: mega-cap AI beneficiaries with strong FCF re-rate higher as the capex cycle accelerates, while unprofitable long-duration growth compresses further given elevated rates and the market's rotation toward earnings quality.

It's not inherently a red flag—it likely signals stable, predictable cash flows attractive to PE—but I'd scrutinize the remaining value-creation runway, rising entry multiples each cycle, and why no strategic buyer has stepped in.

The Gordon Growth method values a stream of cash flows that grows at a steady rate forever. That makes it the standard fundamentals-based way to set terminal value in a DCF (the value of all cash flows after the forecast years) and to value a mature company paying a stable, growing dividend. It is built from cash flow, the discount rate, and a long-run growth rate, with no market multiples. So the intrinsic value it gives does not depend on where comparable companies trade today.

A good LBO candidate has stable, predictable cash flows to support high leverage, strong free cash flow conversion to pay down debt, meaningful EBITDA growth opportunities, a defensible market position, and multiple viable exit paths.

The preferred method is to find the yield to maturity on the company's traded bonds (or use a credit rating plus default spread if bonds aren't traded), then multiply by (1 – tax rate) to get the after-tax cost of debt.

Start at net income, add back non-cash charges, and adjust for changes in working capital. That gives cash from operations. Capital expenditures sit in investing. Debt, equity and dividends sit in financing. Sum the three sections to get the net change in cash, add that to beginning cash, and you have ending cash. That ending cash is the cash line on the balance sheet, which is how the statement ties back.