"How much would your fund be willing to pay for this company?" is one of the most common questions in private equity interviews — and one of the easiest to fumble, because most candidates instinctively reach for a DCF or comps-style answer when the interviewer is really testing something else: can you work backward from a return target to a price.

Recognize the Question Type First

If the prompt gives you (or implies) a target IRR, a holding period, and some sense of how the business will grow and be financed, you're not being asked for an intrinsic valuation — you're being asked for the fund's maximum affordable entry price. Answering with "I'd run a DCF" here signals you've missed the point of the question. The correct opening line is closer to: "I'd work backward from our target return to figure out the highest entry multiple we could pay and still hit our hurdle."

The Five-Step Framework

Talk through it in this order — interviewers are listening for the sequence as much as the arithmetic:

  1. Estimate exit value. Project EBITDA to your assumed exit year and apply an exit multiple (often assumed equal to the entry multiple, unless told otherwise) to get Exit Enterprise Value.
  2. Bridge to exit equity value. Subtract the net debt you expect to still be carrying at exit — this is what actually flows to the fund's equity, not the enterprise value.
  3. Translate your IRR hurdle into a multiple. Compute (1 + target IRR) raised to the number of holding-period years. This turns an annualized return into a single MOIC you can compare directly to a dollar amount.
  4. Back into the maximum equity check. Divide exit equity value by the required MOIC. This is the most you can invest today and still clear your hurdle.
  5. Add back entry debt to get a maximum price. Size the debt the deal can support at entry (often given as a leverage multiple of EBITDA), add it to the maximum equity check, and divide by entry EBITDA to express the answer as a maximum entry multiple — the number you'd actually quote in a bid.

A fully worked version of this exact framework, with real numbers at every step, is walked through in How PE Thinks About Valuation.

What Interviewers Are Actually Grading

Three things, roughly in this order of importance: whether you keep enterprise value and equity value straight throughout (a very common slip), whether you correctly convert an annual IRR into a holding-period MOIC instead of just multiplying IRR by the number of years, and whether you can explain why the answer moves the way it does when an assumption changes — not just recompute it. Interviewers will almost always follow up with a "what if the exit multiple were a turn lower" or "what if leverage increased" question, so be ready to reason about direction and magnitude on the fly, not just the base case.

A Common Trap: MOIC vs. IRR

Candidates frequently multiply the target IRR by the holding period instead of compounding it — for example treating a 25% IRR over 5 years as "125% total return" instead of (1.25)^5 ≈ 3.05x. That shortcut understates the true required multiple and overstates how much the fund can pay. Always compound, never multiply, when converting an annualized IRR into a MOIC.

Practice the Full Calculation

Once you're comfortable with the framework, work through the complete numerical example — including the sensitivity of the answer to exit multiple, target IRR, and leverage — in How PE Thinks About Valuation. For the underlying EV-to-equity mechanics used in Step 2, see Full EV-to-Equity Bridge, and browse more private equity and valuation questions in the case library.