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Enterprise & Equity Value Interview Questions for Finance

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Difficulty: Beginner

Interviewer-led

< 100 Ratings

Times solved: 200+

Valuation

This set of questions is designed to help you master the fundamentals of Enterprise Value (EV) and Equity Value. The questions start with basic concepts, such as the difference between EV and Equity Value, and progress to key topics like calculating EV, the impact of diluted shares, and understanding the Treasury Stock Method.

In total, walking through this set in an interview would take approximately 30 minutes, making up around 60% of a typical 45-minute interview. Below, you’ll find model answers for each question, along with tips for the interviewer on what to look for in candidate responses.

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What's the difference between Enterprise Value and Equity Value?

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Why is it important to consider both Enterprise Value and Equity Value in an acquisition?

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Is one more important in an acquistion than the other?

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How is Enterprise Value determined?

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How would you calculate Enterprise Value if the company has excess non-operating assets?

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How do diluted shares affect the Enterprise Value?

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Explain the Treasury Stock Method.

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Practice Case: InnovateX Solutions

InnovateX Solutions has 200 shares outstanding at a share price of $20 each. It also has 15 stock options outstanding with an exercise price of $12 each. What is InnovateX Solutions’ fully diluted equity value?

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Step 1: Calculate the Basic Equity Value by multiplying the current share price by the number of shares outstanding.

Calculation of the Basic Equity Value

Basic Equity Value = 200 shares * 20 dollars/share = 4,000 dollars

Step 2: Account for the dilutive effect of options.

15 stock options are in-the-money, meaning the exercise price of $12 is lower than the current share price of $20. Since these options are attractive to the option holders, they will likely be exercised. When these options are exercised, the company will issue 15 new shares to the option holders. These newly issued shares increase the total number of shares outstanding.

Step 3: Calculate the proceeds from exercising options.

Calculation of Proceeds from Options

When the options are exercised, InnovateX Solutions will receive $12 per option. The total proceeds from the exercise of these 15 options are:

Proceeds from Options = 15 options * 12 dollars/option = 180 dollars.

Step 4: Repurchase shares with the proceeds.

The company will use the $180 it received from exercising the options to repurchase shares at the current share price of $20.

Calculation of Shares Repurchased

Shares Repurchased = 180 dollars / 20 dollars/share = 9 shares

Step 5: Calculate the fully diluted share count.

Calculation of Fully Diluted Shares

The company originally had 200 shares outstanding, and after issuing 15 new shares and repurchasing 9 shares, the total fully diluted share count is:

Fully Diluted Shares = 200 original shares + 15 new shares − 9 repurchased shares = 206 fully diluted shares

Step 6: Calculate the fully diluted equity value.

Calculation of Fully Diluted Equity Value

Finally, the fully diluted equity value is calculated by multiplying the fully diluted shares by the current share price:

Fully Diluted Equity Value = 206 shares * 20 dollars/share = 4,120 dollars

The fully diluted equity value of InnovateX Solutions is $4,120. This takes into account the stock options and the repurchase of shares.

How does debt affect the calculation of Enterprise Value?

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Related Finance Interview Basics Articles

Market Approach

Valuation Models

The market-based approach is one of the three primary methods of business valuation, alongside the income approach and the asset-based approach. Instead of projecting future earnings or adjusting balance sheet values, it determines value by comparing a company to similar businesses (Comparable Company Analysis) or transactions (Precedent Transactions Analysis) in the market. The underlying idea is straightforward: the market prices paid for comparable firms provide a benchmark for what the target company should be worth.This approach typically relies on valuation multiples such as EV/EBITDA, P/E, or EV/Sales, derived from public company data or recent M&A deals. By applying these multiples to the target’s financials, analysts can estimate its market value under real-world conditions. The challenge lies in carefully selecting and interpreting the peer group, since differences in growth, risk, and profitability can significantly affect the outcome.

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Asset-based Approach

Valuation Models

The asset-based approach to company valuation is one of the three primary methods used in finance, alongside the income approach and the market approach. While the income approach values a business based on future cash flows and the market approach relies on valuation multiples to compare companies, the asset-based approach looks directly at the balance sheet. It adjusts a company’s assets and liabilities to their current fair market value, with the difference representing the company’s net asset value (NAV).This guide explains how the asset-based approach works, outlines its main variants such as book value, adjusted net asset value, and liquidation value, and shows in which situations it is most relevant. You will also find examples of common finance interview questions on this valuation method, as the asset-based approach frequently appears in interviews and assessments for roles in investment banking and corporate finance.

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Capital Asset Pricing Model (CAPM)

Valuation Models

In company valuation, the Capital Asset Pricing Model (CAPM) is a method used to calculate the cost of equity. The cost of equity is the return a company requires to compensate its equity investors or shareholders for the risk they undertake by investing their capital. There are other methods to estimate the cost of equity, such as the dividend capitalization model, but CAPM is the most popular one. The CAPM formula also helps investors figure out what return they should expect from an investment, based on how risky it is. It’s like a “fair deal” calculator for investments. Below is an overview of the CAPM formula, its assumptions, and common interview questions related to it.

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PESTEL Analysis

Business Frameworks

Whether it’s new markets, changing regulations, or technological developments, companies must continuously understand and assess their environment to identify risks and opportunities early on. This is exactly where business analysts and consultants come in: they help organizations spot market risks and opportunities at an early stage. To do this, they rely on analytical tools that systematically evaluate both internal factors and external influences. Among the most popular methods, alongside the SWOT analysis and Porter’s Five Forces, is the PESTEL analysis.While SWOT examines both internal and external factors, PESTEL zooms in on the external components. Thus, it offers more insights into the macro-environmental forces that create those opportunities and threats to help in strategic planning and informed decision-making.

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EBITDA

Key Figures & Terms

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It reflects a company’s earnings before taking into account interest payments, tax expenses, and non-cash items like depreciation and amortization. You can think of it as an extended version of EBIT that excludes all depreciation-related costs.The idea behind this: depreciation and amortization are non-cash expenses and often influenced by accounting methods, assumptions, or company policies. By stripping them out, EBITDA aims to provide a clearer picture of a company’s ongoing operational performance, regardless of how much has been invested or how assets are accounted for.

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Finance Interview Questions – Prepare for Your Finance Interview Like a Pro

Practice with our curated Finance Interview Question Sets and get ready for your upcoming interview in Corporate Finance, Investment Banking, or Private Equity.
Whether you are applying to an investment bank, a Big Four firm, or a corporate finance department, these questions will help you build confidence and master your finance interview skills.

A comprehensive selection of Finance Questions
Our collection covers the key areas of typical finance interviews – from Accounting, Financial Modelling, and Valuation to M&A transactions, Capital Markets, and Corporate Strategy.
The sets vary in difficulty, allowing you to train both fundamental and advanced concepts.
Many of the questions are based on real interview experiences from top firms such as Goldman Sachs, J.P. Morgan, Deloitte and PwC, giving you authentic insights into what to expect.

Practice alone or team up with other candidates, compare your answers, and refine your problem-solving approach.
Get fully prepared for your next Finance Interview with PrepLounge!