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Happy Leap Day, future bankers!

Hope everyone is doing well! Today we’re covering sensitivities in DCFs, talking about a time you went above and beyond, and Microsoft’s new AI Copilot for Finance that may put us all out of our jobs.

🚀 Let’s get into it.

🔢 Technical Question

“Which of the following will have a greater impact on a company’s DCF valuation: a 10% change in revenue or a 1% change in the discount rate?”

The impact of a 10% change in revenue or a 1% change in the discount rate on a company’s Discounted Cash Flow (DCF) valuation can depend on various factors, including the company’s operating margin, growth rate, cost of capital, and the specific year in which these changes occur. However, here’s a general way to think about it:

1. 10% Change in Revenue: A 10% increase in revenue will increase the Free Cash Flow (FCF) of the company, assuming all else remains constant. This increase in FCF will be reflected in every future period, leading to a higher DCF valuation. However, the impact of this change diminishes over time due to the effect of discounting.

2. 1% Change in the Discount Rate: A 1% decrease in the discount rate will increase the present value of all future FCFs, leading to a higher DCF valuation. This change impacts not just the current period but all future periods as well, and its effect does not diminish over time.

In many cases, a 1% change in the discount rate could have a more significant impact on the DCF valuation than a 10% change in revenue, especially for companies with high growth rates or long-term cash flows. However, the specific impact would depend on the details of the company’s financials and the DCF model used.

Remember, in an interview context, it’s important to clarify that the answer depends on the specifics of the situation and demonstrate your understanding of the underlying principles. It’s not just about the answer, but also about how you think through and communicate your reasoning.

🗣 Behavioral Question

"Tell me about a time that you went above and beyond on a project. What was the outcome, and why did you choose to put in extra effort?"

Here are some best practices for responding to this question:

1. Choose a Relevant Example: Pick a project where your extra effort had a significant impact. It could be from your academic projects, previous internships, or even extracurricular activities. The key is to choose an example that showcases skills relevant to the investment banking role you’re interviewing for.

2. Situation: Start by describing the context of the project. What was the project about? What was your role? What were the project’s objectives?

3. Task: Explain what your responsibilities were in the project. What were you expected to do?

4. Action: This is the core of your answer. Describe what you did that went above and beyond the call of duty. Be specific about the actions you took. Did you put in extra hours? Did you learn a new skill to help with the project? Did you take the initiative to solve a problem?

5. Result: Discuss the outcome of your actions. How did your efforts benefit the project? Did it lead to a successful outcome? Did it exceed expectations? Use quantifiable results if possible.

6. Reflection: Explain why you chose to put in the extra effort. What motivated you? This is your chance to show your passion, commitment, and drive.

Remember, the interviewer is not just interested in the story itself, but also in your thought process and motivations. They want to see your problem-solving skills, initiative, and how you handle challenges. Be honest and use this opportunity to highlight your strengths.

🗞 Industry News

Microsoft Releases Copilot for Finance 🤖

Microsoft continues to infuse generative AI technology across its product lines with the introduction of Copilot for Finance. Designed as a public preview, this AI service promises to streamline financial reporting by aiding users in data analysis and error detection. Copilot for Finance builds upon Microsoft's existing AI-powered enhancements for various business applications, including Microsoft 365, Sales, Service, and Windows 11.

Microsoft's Copilot for Finance can analyze financial data in real-time, automate audits, flag inconsistencies, and help generate reports or emails using natural language. While pricing details are unavailable, it's likely to be integrated with Copilot for Microsoft 365. This push aligns with Microsoft's goal to stay ahead of competitors like Google and Salesforce. The company aims to capitalize on its significant investments in generative AI, including its partnership with OpenAI (ChatGPT's developer) and the integration of new AI models from Mistral into its Azure cloud platform.

It will be interesting to see how Copilot for Finance impacts the day-to-day work of analysts. Fingers crossed it doesn’t take over completely!

Read more about this story below.

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Thanks for tuning in today! Best of luck to everyone working through recruiting right now. If you sign an offer, reply to this email and let us know about it! Like seriously, do it—we’d love to hear about it!