J.P. Morgan IB Interview Questions

Yes — cost of equity is almost always higher than cost of debt because equityholders bear more risk as residual claimants with no guaranteed cash flows, and the tax deductibility of interest further widens the gap.

I don't have access to live market data, but as of my last update the DJIA was trading around 40,000–42,000; in an interview, always cite the exact level you checked that morning.

The key point is that the TCJA's mandatory transition tax under Section 965 taxed Apple's accumulated offshore earnings whether or not the cash was actually repatriated. So the old U.S. tax advantage of leaving the cash offshore largely disappeared. Once Apple owed the tax anyway, bringing the cash back became much more attractive because it could use it directly for buybacks, dividends, debt reduction, and investment without an additional U.S. repatriation tax on those previously accumulated earnings.

Company A, because it trades at a lower EV/EBITDA multiple (12.0x vs. 12.5x) and carries less leverage (2.0x Debt/EBITDA vs. 2.5x), meaning you pay less per dollar of EBITDA with lower financial risk.

A declining P/E ratio does not automatically make a company more attractive; you must determine whether it reflects genuine operational undervaluation or is distorted by capital structure changes, and cross-check against EV/EBITDA to isolate operating versus leverage effects.

The curve is inverted. It slopes downward. The one-year rate is 6.00% (100 grows to 106). The two-year rate is 5.83% per year, because 112 is 12% cumulative over two years and 1.12^(1/2) - 1 = 5.83% annualized. The rate for year 2 by itself is the implied forward rate: 1.12 / 1.06 - 1 = 5.66%.

Adding debt initially lowers WACC because after-tax debt is cheaper than equity, but beyond a certain point rising equity and debt costs from increased financial risk push WACC back up, creating a U-shaped curve.

Apple has historically issued debt to fund buybacks because, before tax reform, borrowing in the U.S. was often cheaper than repatriating foreign cash. Today, the main rationale is capital structure optimization: Apple can borrow at a very low cost, preserve liquidity and financial flexibility, and return capital to shareholders without immediately drawing down cash balances.

A can pay up to a 20x P/E multiple for B—equal to 1 / 5% borrowing cost—because at that price the incremental interest expense exactly offsets B's acquired earnings, making the deal accretion/dilution neutral.

Roughly 10.5%–11%, using CAPM with a ~4.25% risk-free rate, ~5.5% equity risk premium, and a beta around 1.2, reflecting Apple's above-market risk from iPhone concentration and China exposure, partially offset by its ecosystem stickiness and massive scale.

The company has negative net debt (cash exceeds debt by $2), meaning it holds more cash than total debt, which is why its enterprise value is less than its equity value.

A biotech startup's WACC typically ranges from 15% to 25%+, driven almost entirely by cost of equity, though practitioners generally prefer risk-adjusted NPV (rNPV) over a single high discount rate for valuation.