Capital

Expect questions on debt versus equity financing, cost of capital (WACC and CAPM), free cash flow, capital expenditures, and the trade-offs companies face when choosing how to fund operations and growth. These concepts underpin every valuation and deal analysis.

Know the WACC formula and be able to explain each component: cost of equity (typically via CAPM), cost of debt, and the weighting methodology. Understand why WACC matters as a discount rate in DCF analysis and how changes in capital structure affect it.

Free cash flow is a critical concept. Be ready to calculate both unlevered and levered free cash flow, explain the difference between them, and articulate why FCF matters more than net income for valuation purposes in investment banking.

Interviewers test your understanding of debt types (senior, subordinated, mezzanine), key terms like covenants and maturity, and how debt capacity is assessed. For leveraged finance roles, expect deeper questions on credit metrics and debt structuring.

Yes. CAPM is the standard model for estimating cost of equity. Know the formula, understand what beta measures, explain the risk-free rate and equity risk premium assumptions, and be ready to discuss CAPM limitations and alternatives.

Capital structure directly affects WACC, which is the discount rate in a DCF. It also determines the bridge between enterprise value and equity value. Understanding this relationship is essential for both technical questions and modeling exercises.