Debt Capital Markets interview preparation

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100

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45

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26

Updated

September 2026

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All topicsBond mechanics11Duration and convexity6Yield curve and rates5Credit spreads5Credit analysis and ratings13Credit modelling9Primary issuance9Syndication and loans10Structured credit7Covenants and documentation5Liability management5Indian debt markets7Fit8

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1. 043Walk me through a DCF, and tell me how tax and depreciation flow through it.Credit modellingIntermediatetechnicalHoulihan LokeyDebt Capital Markets · Los Angeles · 2025

   Say this

   Project unlevered free cash flow for five to ten years, discount at WACC, add a terminal value, and that gives you enterprise value. Depreciation enters twice — once as a tax deduction and once added back as non-cash — so its net contribution is purely the tax shield.

   Then walk it

   1. Build: EBIT, taxed at the marginal rate, plus D&A, less capex, less the change in working capital. Discount each year at WACC using mid-year convention if you want to be careful.
   2. Terminal value two ways: Gordon growth on the final year's cash flow, or an exit multiple on terminal EBITDA. Cross-check them against each other, because a growth rate above nominal GDP or an exit multiple above the entry multiple both need justifying.
   3. Tax: you tax EBIT, not pre-tax income, because the DCF is unlevered. The interest deduction's value is handled either in the WACC through the after-tax cost of debt, or separately as a tax shield in an APV build. Doing both double-counts.
   4. Depreciation: subtract it to get the deduction, add it back because no cash left. The genuine effect is 100 of depreciation times the tax rate of cash saved. In the terminal year, depreciation and capex should converge, otherwise the asset base grows or shrinks forever.
   5. Bridge to equity: enterprise value less net debt, less minorities and preferred, plus associates, divided by diluted shares.
   6. For a restructuring or credit use, the DCF is not really for the equity value — it is for the enterprise value that drives the recovery waterfall. And say the limitation: with 60 to 80 percent of the value typically in the terminal, a DCF is mostly a formal way of stating an assumption.

   Where candidates lose it

   Double-counting the tax shield by using an after-tax WACC and also adding a separate tax shield. And on a debt desk, failing to say what the DCF is for: in restructuring it sets the enterprise value that decides who recovers what, not a target price.

   Expect next

   • How does the tax shield get captured?
   • Why should depreciation equal capex in the terminal year?
   • How would you use this in a recovery analysis?

   Reported by candidates at Houlihan Lokey (Debt Capital Markets, Los Angeles, 2025). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.