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Happy Tuesday, future bankers!

Hope everyone is doing well! Today we’re covering WACC, a time you made a process more efficient, and Reddit’s latest surge in the markets.

🚀 Let’s get into it.

🔢 Technical Question

What is WACC? What does it mean?

Weighted Average Cost of Capital (WACC) is a key concept in investment banking. It represents a company’s average after-tax cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt. Here’s a step-by-step explanation:

1. Definition: WACC is the average rate that a company expects to pay to finance its business. It’s a quantitative measure of risk given the company’s business model and capital structure.

2. Components: WACC takes into account the cost of each type of capital (debt and equity), each proportionately weighted. This means it considers the cost of equity and the cost of debt, each multiplied by its respective proportion in the company’s capital structure.

3. Usage: WACC is commonly used as a hurdle rate against which companies and investors can gauge the desirability of a given project or acquisition. It’s also used as the discount rate for future cash flows in discounted cash flow (DCF) analysis.

4. Interpretation: A lower WACC indicates a healthy business that’s able to attract money from investors at a lower cost. Conversely, a higher WACC usually coincides with businesses that are seen as riskier and need to compensate investors with higher returns.

In summary, WACC is a critical measure in investment banking that helps assess the cost of financing a company’s operations and potential investments.

🗣 Behavioral Question

Tell me about a time that you made a process more efficient.

Consider the following principles when responding to the question:

1. Situation: Start by describing the situation or context. This should include the process that was inefficient and why it was problematic.

2. Task: Explain your role in the situation. Were you assigned to improve the process, or did you take the initiative yourself?

3. Action: Detail the specific actions you took to improve the process. This could involve identifying bottlenecks, implementing new tools or technologies, or restructuring the process flow.

4. Result: Discuss the outcomes of your actions. Use quantifiable results if possible, such as time saved, increase in output, or reduction in errors.

5. Skills and Qualities: Highlight the skills and qualities you demonstrated in this situation, such as problem-solving, initiative, leadership, or analytical thinking.

Remember to be concise and focus on your role and contributions. The interviewer is interested in how you approach problems and implement solutions, so be sure to emphasize these aspects. Also, prepare for potential follow-up questions about your experience and the results you achieved.

🗞 Industry News

🤡 Reddit is the New Meme Stock

Reddit, once known for its role in the meme stock rally of 2021, is now making waves with its own stock. The Reddit stock saw a surge of over 12% on Tuesday and has rallied more than 30% since its initial public offering. This resurgence of meme stocks extends beyond Reddit, with GameStop experiencing its best one-day rise in a year and the Trump Media and Technology Group’s stock soaring by over 50% in a single trading session. As Steve Sosnick, chief strategist at Interactive Brokers, puts it, we’re in a “very exuberant market” where momentum, not fundamentals, drives the market.

In addition to meme stocks, other risk-on market indicators are also flashing. Bitcoin is nearing $71,000 per coin, and MicroStrategy, a stock that closely follows Bitcoin’s price, is up over 200% year to date. The commodities trade is also booming, with gold up 7% in the last month and cocoa prices rising nearly 50%. Despite the broader market sitting at all-time highs and the S&P 500 hitting 20 all-time highs in less than three months, many strategists argue that we’re not in a stock market bubble. They believe the $260 billion poured into equities since last May indicates an improving outlook for the economy and earnings, rather than a peak in risk appetite.

Read more about this story below.

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!