Investment Banking Interview Questions

How would you value an apple tree?

By January 28, 2022No Comments

The investment banking interview question we’re going to go over today is “How would you value an apple tree?” This question is actually a lot easier than it seems. Here’s what you can say for this interview question.

Interview Answer

“There are several ways I can value an apple tree.  

First, I can try to estimate how many apples the tree will produce every year and multiply it by the going market price per apple to estimate annual sales. Then, I’ll subtract costs and any CapEx I have to pay to care for the tree. That’ll give me the yearly free cash flow I’ll get from the apple tree. I can project that forward and then calculate the apple tree’s discount rate. Finally, I would discount the future free cash flow back to the present, which would tell me the apple tree’s intrinsic value.

Alternatively, I can also look at what similar apple trees have been sold for in the market. I can analyze these comparables on a Value per Apple basis. And then I can apply this multiple to the number of apples that our tree has and that’ll tell me the value of our apple tree.

So that’s how I’d go about valuing the apple tree.”

Additional Tip:

In short, this is how you answer the question: “How would you value an apple tree”. This is actually a super easy question. All you’re doing here is walking them through DCF and comps, but swapping out the generic objects for an apple tree. In fact, this is what you should do anytime you get a “how do you value something” question. Just do a DCF and comps, and swap out the generic objects for that particular thing.

More IBD Interview Questions

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How does raising debt affect a company’s P/E multiple?

How do we decide between using EV/EBITDA vs EV/Sales?

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