Investment Banking interview preparation
Every question below is either traced to a named firm from a public candidate report, or tagged at desk level when we could not trace it. Answers are written the way you would actually say them out loud — answer first, then the mechanism, then the limitation.
100 questions, mapped to the firms that asked them
- Questions
- 100
- Traced to a firm
- 100
- Firms
- 46
- Updated
- September 2026
070What happens to EPS if a company issues debt to buy back shares?Deutsche BankInvestment Banking · San Francisco · 2025
Say this
EPS usually rises, because the share count falls faster than net income does. It is accretive as long as the after-tax cost of the new debt is below the earnings yield of the stock you are buying.
Then walk it
- Net income falls by the after-tax interest on the new debt. Share count falls by the shares repurchased. EPS is the ratio, so the direction depends on which falls proportionally more.
- The test: compare the after-tax cost of debt to the stock's earnings yield, which is the inverse of its P/E. Debt at 6 percent pre-tax is 4.5 percent after tax. A stock at 15 times P/E has a 6.7 percent earnings yield. Accretive.
- Flip it: a stock at 30 times P/E has a 3.3 percent earnings yield, below the 4.5 percent after-tax cost. Dilutive. Which is why expensive stocks should issue equity, not buy it back.
- Say the number to prove you can do it: $1,000 of debt at 6 percent costs $45 after tax at a 25 percent rate. If that buys 100 shares out of 1,000 and net income was $100, EPS goes from $0.10 to $55 over 900 shares, which is $0.061. Dilutive in that case, and the arithmetic tells you immediately.
- Then the value point: higher EPS does not mean more value. You have raised leverage, so the equity is riskier and the multiple should compress. Rearranging the capital structure does not create value on its own.
Where candidates lose it
Answering 'EPS goes up' with no condition. It depends entirely on the relationship between the cost of debt and the earnings yield. And stopping at EPS without noting that the multiple should fall as leverage rises.
Expect next
- So when is a buyback value-destructive?
- What are the different ways to use excess cash?
- How does this change the company's WACC?
Reported by candidates at Deutsche Bank (Investment Banking, San Francisco, 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.