Reference no: EM131275936
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There is only one correct answer for each question. Please mark clearly the correct answer underlying it.
In Each question you should put a comment of 2 or 3 lines explaining why this is the right answer and the others are wrong.
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1. According to the European Venture Capital Association, the main investors in Europe in Private Equity funds are:
a. Wealthy individuals & Family offices
b. Banks
c. Pension Funds
d. Insurance companies
2. The figure of an investor in a Private Equity fund is also called:
a. General Partner
b. Limited Partner
c. Senior Partner
d. Junior Partner
3. Which of the following sentences is NOT correct:
a. The committed capital is called when a fund manager has ready an investment.
b. A fund manager can make a distribution to investors prior to investment in companies to increase the IRR of the fund.
c. When receiving the proceeds of a divestment in a portfolio company, the fund manager usually makes a distribution quickly to investors of the fund.
d. The fund manager can only invest into new portfolio companies during the investment period, usually between 2 and 4 years since inception.
4. The general partner's share of a distribution upon the completion of an investment is known as:
a. Management fees
b. Monitor fees
c. Consulting fees
d. Carried interest
5. Regarding the process of investment in a portfolio company, this stage will be completed while finalizing a Private Equity deal:
a. Evaluation
b. Structuring
c. Screening
d. Monitoring
6. Which of the following is incorrect regarding venture capital firms and their deal design?
a. Start-up companies raise venture capital to carry them through to the point at which they can make their first public issue of stock.
b. Venture capital firms try to structure the financing to avoid conflicts of interest. If both the entrepreneur and the venture capital investors have an important equity stake in the company, they are likely to pull in the same direction.
c. The entrepreneur's willingness to take that stake also signals management's confidence in the company's future. In addition, most venture capital is provided in stages that keep the firm on a short leash and force it to prove at each stage that it deserves the additional funds.
d. None of the above is incorrect.
7. Why is EBITDA a useful measure of earnings?:
a. It determines the exact amount of cash-flow
b. It eliminates the effect of both financial structuring and accounting policy decisions
c. It's a GAAP accepted measure of accounting
d. None of the above
8. Malcom X is a PE fund manager that it is studying an investment in Fantastic Electronics. He is looking to achieve a minimum IRR of 25% in 3 years. The valuation of 100% today is $50MM and the founders are proposing that Malcom fund takes a 25%. How much should have to be the value in 3 years of Fantastic Electronics to achieve his expectations?
a. $100MM
b. $90MM
c. $80MM
d. $70MM
9. Malcom X is studying another transaction in Space Mountain. The company is asking a $3MM investment (increasing capital) giving in return 15% of the company. Considering that EBITDA last year was $2MM, which is the pre-money EBITDA multiple paid?
a. 10x
b. 8.5x
c. 7x
d. 5.5x
10. Regarding the process of investment, what is a Due Diligence:
a. Is a financial review of the target company
b. Is a detailed review of the liabilities of the target company to check that are no hidden ones.
c. Is a long checking of the insurances of the target company to check that it is well covered in case a contingency happens
d. It is a detailed review of the target company that is comprised of financial, environmental, social, tax and other audits
11. While negotiating with Banks to finance the acquisition of a target company (LBO), the typical financial covenants included in the credit agreement are:
a. A certain volume of total debt in the target company
b. Comply with a ratio of X times total debt to EBITDA
c. Comply with a ratio of X times EBITDA to interest paid
d. All of the above
12. What is the most that an investor in a Private Equity fund can lose?
a. 1⁄2 their total capital contributions
b. Their total capital contributions and any liability the fund may incur
c. The sum of the capital contributions only
d. None of the above.