Banking Investment Banking 2

Question 1

What is a leveraged buyout (LBO)?

Accepted Answer

An acquisition funded primarily with borrowed money using the target's assets as collateral

Answer

An LBO is an acquisition in which the buyer finances the majority of the purchase price with debt, often using the target company's own assets and cash flows as collateral.

Question 2

Which valuation method estimates a company's value based on the present value of its future free cash flows?

Accepted Answer

Discounted cash flow (DCF) analysis

Answer

DCF analysis projects a company's future free cash flows and discounts them back to the present using a required rate of return (WACC).

Question 3

What does EBITDA stand for in investment banking valuation?

Accepted Answer

Earnings Before Interest, Taxes, Depreciation, and Amortization

Answer

EBITDA measures a company's core operating profitability by excluding non-cash charges and financing costs, making it a key metric for valuation multiples.

Question 4

In investment banking, what is a 'bulge bracket' bank?

Accepted Answer

One of the largest, most prestigious global full-service investment banks

Answer

Bulge bracket banks are the world's largest investment banks — such as Goldman Sachs, JPMorgan, and Morgan Stanley — that handle the biggest deals globally.

Question 5

What is the 'Chinese Wall' in an investment bank?

Accepted Answer

An information barrier between advisory and trading divisions to prevent insider trading

Answer

The Chinese Wall (information barrier) prevents the flow of material non-public information between the investment banking advisory side and the trading/sales side.

Banking Practice Test

Banking Practice Test

Banking Investment Banking 2