Private Equity interview preparation

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September 2026

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1. 037If a company raises $100 of debt to buy back $100 of shares, what happens to enterprise value and equity value?ValuationIntermediatetechnicalSilver LakeTechnology, Media and Telecom · San Francisco · 2022

   Say this

   Enterprise value is unchanged, because the operating business did not change. Equity value falls by $100 and net debt rises by $100, so the two offset exactly.

   Then walk it

   1. Enterprise value is the value of the operating assets. Issuing debt and retiring stock rearranges the claims on those assets without touching them.
   2. Equity value falls by the $100 spent on the buyback. Net debt rises by the $100 raised. EV equals equity plus net debt, so it is unchanged.
   3. Share count falls, so value per share need not fall. If the buyback was executed at fair value, per-share value is unchanged; above fair value it destroys per-share value, below it creates it.
   4. The second-order effects are where it gets interesting: the tax shield on the new debt adds some value, while higher leverage increases distress risk and the cost of equity. In the Modigliani-Miller frame with taxes, the tax shield dominates at moderate leverage.
   5. EPS usually rises because the share count fell more than net income did, but as always that is arithmetic rather than value creation.
   6. So the clean answer: EV flat, equity down $100, net debt up $100, per-share value depends entirely on the price paid.

   Where candidates lose it

   Saying enterprise value falls because debt went up. Debt is part of the bridge, not part of enterprise value. This is the single most common enterprise value misunderstanding and it gets tested constantly.

   Expect next

   • What happens to value per share?
   • When is the buyback value-destructive?
   • What happens to WACC?

   Reported by candidates at Silver Lake (Technology, Media and Telecom, San Francisco, 2022). 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.