IMO, the book and Schweser did a piss-poor job of explaining this, or they made it harder than necessary. Just remember, each tranch of spilt needs to be 80/20. Even on the 7% prefer return, LP get that 7% preferred return, then 80/20 also needs to be achieved. So, you work back to see what 80/20 will get the LP 1.4MM…that turn out be to 1.75M for the total, so 0.35M is the GP spilt.
If the answer for the LP made sense then the answer for the GP would also make sense.
Let’s look at the hurdle rate here.
The LP requires a minimum return of 7% before carried interest is considered, therefore the GP need to generate a breakeven return of 8.75% (7%/0.8 i.e 7% before carried interest) to be fully caught up.
Therefore returning 1.75% (8.75%-7.00%) on a relative basis or 350,000 (20mm*1.75%) on an absolute basis.