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Enterprise & Equity Value Interview Questions for Finance

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Difficulty: Beginner

Interviewer-led

< 100 Ratings

Times solved: 300+

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

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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Compound Annual Growth Rate

Key Figures & Terms

The Compound Annual Growth Rate (CAGR) describes the average annual growth of a metric such as revenue, market size, user base, or investment over several years. It assumes that profits are reinvested and compounded each year, resulting in a steady growth rate over the entire period.Also known as the Annualized Growth Rate or Geometric Average Growth Rate, the CAGR provides a simple way to show how a metric has developed over time without being distorted by short-term fluctuations.

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Dividend Discount Model (DDM)

Valuation Models

The Dividend Discount Model (DDM) is an income-based valuation method used to estimate the fair value of a company’s stock. It assumes that the value of a stock today equals the sum of all its future dividend payments, discounted back to their present value. By focusing on dividends as the key return to shareholders, the DDM directly links a company’s payout policy to its valuation.Within the broader landscape of valuation models, the DDM is part of the income approach, alongside methods like the Discounted Cash Flow (DCF) analysis or the Gordon Growth Model (GGM). Unlike market-based valuation approaches that rely on relative comparisons, the DDM seeks to determine a company’s intrinsic value by analyzing fundamentals and the time value of money.

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Equity Value

Key Figures & Terms

The term Equity Value often comes up when talking about how companies are valued. But what exactly does it mean?At its core, Equity Value represents the total value of a company’s equity or in other words, how much the ownership in the company is worth from the perspective of the shareholders.For publicly traded companies, calculating Equity Value is straightforward: you simply multiply the current share price by the number of outstanding shares. For private companies, Equity Value is usually estimated through a business valuation process.In both cases, the key question is: How much is the company worth to its owners?

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Leveraged Buyout (LBO)

Processes in Finance

A Leveraged Buyout (LBO) is a type of acquisition where a buyer chooses to finance the purchase using borrowed money or debt and some cash investment, known as equity. So, the "leverage" in leveraged buyout refers to this heavy use of debt financing. In most LBOs, 60-90% of the purchase price comes from borrowed money, while only 10-40% comes from the buyer's own cash.The buyer uses the future cash flows and assets of the company being acquired as collateral for the loans. They can also use the assets of the acquiring company if necessary. Over time, the debt is paid back using the cash that the target company generates. The buyers aim to exit profitably through a sale, merger, or public offering after improving the company's performance and paying down the debt.

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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!