FINRA Series 79 - Investment Banking Representative Exam Practice Test
Series 79 practice questions sample investment-banking analysis, including financial-statement calculations, valuation, securities offerings, and transaction structures. The available material connects accounting measures such as gross margin and operating cash flow with decisions about enterprise value, acquisition pricing, and the form of a business sale.
Exam overview
About the FINRA Series 79 - Investment Banking Representative Exam
Investment-banking work requires interpreting a company’s financial position and operating results in the context of a transaction. Practice topics include calculating margins, cash flow from operations, and interest coverage; selecting valuation measures such as enterprise-value multiples; and applying discounted cash flow methods, including discounting unlevered free cash flow. Transaction questions distinguish issuer financing from sales by existing owners and consider how cash, debt, and working capital affect purchase-price calculations. They also address asset-sale structures and the information a board needs to evaluate a proposed transaction. These skills support financial analysis, transaction comparisons, and clear communication of deal economics to clients and other participants.
Sample Practice Questions
Review a selection from this exam's published US Practice Tests practice bank.
A company’s annual revenue is $240 million and its annual cost of goods sold is $150 million. What is its gross profit margin?
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Correct answer: BGross profit is revenue minus cost of goods sold: $240 million − $150 million = $90 million. Gross profit margin is $90 million divided by $240 million, or 37.5%.
A company has 6 million shares of common stock outstanding and declares a 3-for-2 stock split. Assuming no other changes, how many shares will be outstanding after the split?
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Correct answer: CA 3-for-2 split increases the share count by a factor of 3/2: 6 million × 1.5 = 9 million shares. A split changes the number of shares and per-share price proportionally, not the company’s total equity value by itself.
A company reports net income of $36 million and depreciation and amortization of $9 million. It has no other noncash expenses, working-capital changes, or investing activities. What is its cash flow from operations under the indirect method?
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Correct answer: CUnder the stated assumptions, cash flow from operations is net income plus depreciation and amortization: $36 million + $9 million = $45 million.
A company generates $12 million of operating income and incurs $3 million of interest expense. Ignoring taxes and other items, what is its interest coverage ratio, calculated as operating income divided by interest expense?
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Correct answer: CInterest coverage under the stated definition is operating income divided by interest expense: $12 million ÷ $3 million = 4.0x.
A company is evaluating an acquisition and wants to compare the purchase price with the target’s operating performance before financing and taxes. Which valuation multiple is most directly suited to that comparison?
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Correct answer: BEnterprise value reflects claims of both debt and equity holders, while EBITDA is measured before interest, taxes, depreciation, and amortization. The ratio is commonly used to compare operating businesses with different capital structures.
An issuer plans to sell newly issued shares to investors, with the proceeds going to the issuer. Which type of transaction is this?
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Correct answer: CIn a primary offering, the issuer sells newly issued securities and receives the proceeds. In a secondary sale, existing holders sell their securities and generally receive the proceeds.
In a cash-free, debt-free business sale, which balance-sheet items are commonly addressed separately from the agreed enterprise value when calculating the amount payable to the seller?
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Correct answer: AA cash-free, debt-free price convention typically adjusts the agreed enterprise value for delivered cash, debt-like items, and whether working capital at closing meets an agreed target. The purchase agreement defines the specific adjustments.
How to use this practice test
The free US Practice Tests bank contains 50 published questions. Start a session of up to 20 randomly selected questions, then use the displayed results to identify areas for focused review. Work through calculations before selecting an answer, and note whether each question concerns accounting, valuation, financing, or transaction mechanics.
Preparation tips
- Practice moving between revenue, cost of goods sold, gross profit, and gross margin; check whether the question asks for a dollar amount or a percentage.
- For cash-flow questions, identify noncash expenses and working-capital changes before reconciling net income to operating cash flow.
- Compare valuation measures by what they capture: distinguish enterprise value from equity value and match operating performance measures to the relevant multiple.
- For discounted cash flow problems, distinguish unlevered free cash flow from cash flow to equity and apply the corresponding discount-rate concept.
- When analyzing sale scenarios, separate newly issued shares from existing-owner sales and track how cash, debt, and working capital may affect proceeds.