Gallagher & Mohan Interview Questions and Answers

Q1. What is WACC and how is it used in Real Estate?
Ans. 
WACC stands for Weighted Average Cost of Capital and is used to determine the minimum return a company must earn on their investments to satisfy their shareholders and debt holders.
• WACC is calculated by taking the weighted average of the cost of equity and the cost of debt, with each component weighted by its respective proportion in the company's capital structure.

• In Real Estate, WACC is used to evaluate the feasibili...read more
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Q2. A word problem where you had to calculate IRR
Ans. 
Calculating IRR for a word problem
• Identify the initial investment and cash flows over time

• Use a financial calculator or Excel to calculate the IRR

• IRR is the discount rate that makes the net present value of all cash flows equal to zero
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I was given a set of assumptions on the basis of which I had to create a DCF model on real estate. It included topics like NNN lease, and I had to find the IRR of the project, the projected profit, Equity multiple and earnings.

Q1. How do you calculate Cash on cash returns?
Ans. 
Cash on cash returns are calculated by dividing the annual pre-tax cash flow by the initial investment.
• Calculate the annual pre-tax cash flow from the investment property.

• Divide the annual pre-tax cash flow by the initial investment amount.

• Express the result as a percentage to get the cash on cash return.

• Formula: Cash on Cash Return = (Annual Pre-tax Cash Flow / Initial Investment) * 100%
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Q2. Would you prefer a lower or a higher cap rate and why
Ans. 
I would prefer a lower cap rate as it indicates higher potential returns on investment.
• Lower cap rate implies higher potential returns on investment

• Higher cap rate may indicate higher risk or lower potential returns

• Investors typically prefer lower cap rates for safer investments

• Example: A cap rate of 5% may be preferred over a cap rate of 10%
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Round 1 involves a real estate case study, while Round 2 consists of an online Excel test that focuses on functions such as SUMIF, COUNTIF, and other formulas.

Q1. What is the capitalization rate (cap rate) in real estate?
Ans. 
The capitalization rate (cap rate) in real estate is a measure used to estimate the potential return on investment for a property.
• The cap rate is calculated by dividing the property's net operating income (NOI) by its current market value or acquisition cost.

• It is expressed as a percentage and is used by investors to compare different investment opportunities.

• A higher cap rate indicates a higher potential return, but m...read more
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Q2. What is the unlevered IRR and levered IRR?
Ans. 
Unlevered IRR is the internal rate of return without considering debt, while levered IRR includes the impact of debt financing.
• Unlevered IRR is the return on an investment without taking into account the effects of financing, such as loans or debt.

• Levered IRR, on the other hand, considers the impact of debt on the investment's return.

• Unlevered IRR is useful for comparing investments on an equal footing, while levered I...read more
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Q3. Which cap rate would you choose between a higher cap rate and a lower cap rate, and what is your rationale for that choice?
Ans. 
I would choose a higher cap rate for potentially higher returns.
• Higher cap rate typically indicates higher potential returns on investment.

• Investors may choose a higher cap rate for riskier investments or properties with higher growth potential.

• Lower cap rate may be chosen for more stable and lower risk investments.

• Consider the market conditions, property type, and investment goals when deciding on cap rate.
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Q4. Where do you see yourself in the next five years?
Ans. 
In the next five years, I see myself advancing in my career as a financial analyst, taking on more responsibilities and potentially moving into a senior analyst role.
• Continuing to develop my analytical skills and financial knowledge through on-the-job experience and further education

• Seeking opportunities for growth and advancement within the company or potentially exploring new opportunities in the finance industry

• Buil...read more
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Q5. What is the internal rate of return (IRR)?
Ans. 
IRR is the discount rate that makes the net present value of all cash flows from a particular investment equal to zero.
• IRR is used to evaluate the attractiveness of an investment or project.

• It represents the annualized rate of return of an investment.

• IRR is calculated by setting the net present value of cash flows equal to zero and solving for the discount rate.

• If the IRR is greater than the cost of capital, the invest...read more
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Q6. What is the debt service coverage ratio?
Ans. 
The debt service coverage ratio is a financial metric used to measure a company's ability to cover its debt obligations.
• Calculates the ratio of a company's operating income to its debt payments

• A ratio above 1 indicates the company is generating enough income to cover its debt payments

• Used by lenders to assess the risk of lending to a company
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Q7. One excel test with panel in sheet they provided data with the help given functions countif, sumif, hlookup, vlookup we need to calculate that
Ans. 
Utilize Excel functions to analyze data effectively for financial insights.
• COUNTIF: Counts the number of cells that meet a criterion. Example: =COUNTIF(A1:A10, '>100') counts values greater than 100.

• SUMIF: Sums the values that meet a specific condition. Example: =SUMIF(B1:B10, 'Sales', C1:C10) sums values in C where B is 'Sales'.

• HLOOKUP: Searches for a value in the first row and returns a value in the same column fr...read more
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It was a 30-minute test designed to assess basic knowledge in accounting. There were 30 questions, all of which focused on fundamental concepts. The test was easy.

Q1. TMAY ( Tell me about yourself)
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Q2. Do you have any questions for me ?
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They will provide you with several multiple-choice questions regarding finance.

They provide one case study related to real estate that you need to solve.

Q1. What is cap rate.
Ans. 
Cap rate, or capitalization rate, is a measure used to evaluate the potential return on investment for a real estate property.
• Cap rate is calculated by dividing the property's net operating income (NOI) by its current market value.

• It is expressed as a percentage and is used by investors to compare different investment opportunities.

• A higher cap rate indicates a higher potential return, but may also come with higher ris...read more
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Q2. What is levered and unlevered beta
Ans. 
Levered beta includes the impact of debt on a company's risk, while unlevered beta does not consider the effects of debt.
• Levered beta reflects the risk of a company with debt, while unlevered beta shows the risk without debt.

• Levered beta is calculated using the company's beta and its debt-to-equity ratio, while unlevered beta is calculated using only the company's beta.

• Levered beta is more relevant for companies with s...read more
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Q3. WACC
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Q4. IRR
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Q5. Hurdle rate
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Q6. NPV
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Q7. After the interview questions, you will need to complete an Excel exam that requires the use of various Excel functions such as SUMIF, SUMIFS, COUNTIF, and COUNTIFS?
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