INTERVIEW QUESTIONS FOR FINANCE AND ACCOUNTSJ

1.  What are the 3 major valuation methodologies? Comparable Companies, Precedent Transactions and Discounted Cash Flow Analysis. 2.  Rank the 3 valuation methodologies from highest to lowest expected value. Trick question - there is no ranking that always holds.  In general,  Precedent Transactions will be higher than Comparable Companies due to the Control Premium built into acquisitions. Beyond that, a DCF could go either way and it's best to say that it's more  variable  than other methodologies. Often it produces the highest value, but it can produce the lowest value as well depending on your assumptions. 3.  When would you  not  use a  DCF  in a Valuation? You do not use a DCF if the company has unstable or unpredictable cash flows (tech or bio-tech startup) or when debt and working capital serve a fundamentally different role. For example, banks and financial institutions do not re-inve...

Question 1. How Do You Calculate The Payback Period? Answer : The payback period is calculated by counting the number of years it will take to recover the cash invested in a project. Let's assume that a company invests $400,000 in more efficient equipment. The cash savings from the new equipment is expected to be $100,000 per year for 10 years. The payback period is 4 years ($400,000 divided by $100,000 per year). A second project requires an investment of $200,000 and it generates cash as follows: $20,000 in Year 1; $60,000 in Year 2; $80,000 in Year 3; $100,000 in Year 4; $70,000 in Year 5. The payback period is 3.4 years ($20,000 + $60,000 + $80,000 = $160,000 in the first three years + $40,000 of the $100,000 occurring in Year 4). Note that the payback calculation uses cash flows, not net income. Also, the payback calculation does not address a project's total profitability. Rather, the payback period simply computes how fast a company will recover its cash inv...