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
031Can debt ever be more expensive than equity, and in what scenario?TD SecuritiesCapital Markets · New York · 2025
Say this
Yes. In deep distress, debt yields can exceed any plausible cost of equity, because the debt is effectively pricing bankruptcy risk while the equity is a cheap out-of-the-money option on recovery.
Then walk it
- The usual ordering holds because debt is senior and its interest is deductible. But it is a tendency, not a law.
- In distress, existing bonds can trade at yields of 20 or 30 percent. New rescue financing can price higher still, sometimes with PIK toggles and warrants on top.
- Meanwhile the equity has almost no value left, so the required return the market demands on the residual stub can look modest in absolute dollars. Option-like equity behaves strangely.
- The tax shield also disappears when there is no taxable income to shield. A company with large losses gets no benefit from deductibility, so the after-tax cost of debt equals the pre-tax cost.
- Rescue and mezzanine financing is the clean real-world example. Sponsors regularly choose to issue equity rather than take a 15 percent PIK instrument, precisely because the debt is dearer.
Where candidates lose it
Answering flatly 'no, debt is always cheaper because it is senior and tax-deductible'. That is the textbook line and the question is designed to test whether you can break it. Name distress and the loss of the tax shield.
Expect next
- What happens to the tax shield if the company has no taxable income?
- Why would a sponsor prefer high yield over bank debt in an LBO?
- How would you price rescue financing?
Reported by candidates at TD Securities (Capital Markets, New York, 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.