Question 1 - 104102 A private equity investor makes a $5 million investment in a venture capital firm today. The investor expects to sell the firm in four years. He believes there are three equally possible scenarios at termination: expected earnings will be $20 million, and the expected P/E will be 10. expected earnings will be 7 million, and the expected P/E will be 6. expected earnings will be zero if the firm fails. The investor believes an IRR of 25% is appropriate. The expected terminal value and the investor’s pre-money valuation, respectively, are closest to (in million): Expected terminal value Pre-money valuation A) $80.67 $28.04 B) $80.67 $33.04 C) $9.00 $3.69 -------------------------------------------------------------------------------- Question 2 - 104097 Analysts Jordan Green and Noelle Lafonte are discussing terminal value estimation in venture capital and buyout investments. Lafonte states: “Private equity firms often use scenario analysis in both venture capital and buyout investments to estimate terminal value.” Green adds: “Private equity firms only use the multiple of net income approach in leveraged buyout (LBO), but not in venture capital investments to estimate terminal value.” With respect to their statements: A) Lafonte is correct but Green is incorrect. B) Green is correct but Lafonte is incorrect. C) Neither Lafonte nor Green is incorrect. -------------------------------------------------------------------------------- Question 3 - 104089 Norah Cyly is the recently appointed manager of a private equity fund that invests exclusively in venture capital investments in online fashion and media advertising companies. In a discussion with the fund’s assistant portfolio manager, Cyly makes the following statements on control mechanisms and exit routes: Statement 1: Earn-outs are mainly used in venture capital investments. They relate the acquisition price paid by the limited partners to the future performance of the portfolio companies. Statement 2: It is generally difficult to value venture capital investments using the portfolio companies’ cash flows or EBIT or EBITDA growth, since both cash flows and earnings are difficult to predict with certainty. With respect to her statements, Cyly is: A) correct on both statements. B) correct on Statement 1 only. C) correct on Statement 2 only. -------------------------------------------------------------------------------- Question 4 - 104101 The effect of capital expenditures in an LBO on cash flow and cash sweep, respectively, is: Cash flow Cash sweep A) Decrease Decrease B) Increase Decrease C) Decrease Increase -------------------------------------------------------------------------------- Question 5 - 104091 The pre- and post-money valuation, and the equity cash flow method, respectively, are most appropriate for valuing: Pre- and post-money valuation Equity cash flow method A) Venture capital Leveraged buyout B) Leveraged buyout Venture capital C) Venture capital Venture capital -------------------------------------------------------------------------------- Question 6 - 103965 Savannah Walton, a venture-capital analyst for Mixon University’s endowment, is investigating Xavier’s Fine Paper. Management seeks a $12 million investment to fund expansion. Assuming owners hold 4 million shares and are willing to issue Mixon 5 million shares, Walton should: A) do the deal, because the buy-in price is $3.0 million below the estimated value. B) do the deal, because the buy-in price is $9.6 million below the estimated value. C) not do the deal, because the buy-in price is $2.4 million more than the estimated value. -------------------------------------------------------------------------------- Question 7 - 104092 The founders of a small technology firm are seeking a $3 million venture capital investment from prospective investors. The founders project that their firm could be sold for $25 million in 4 years. The private equity investors deem a discount rate of 25% to be appropriate, but believe there is a 20% chance of failure in any year. The adjusted pre-money valuation (PRE) of the technology firm is closest to (in millions): A) $4.19. B) $1.19. C) $7.24. -------------------------------------------------------------------------------- Question 8 - 104099 Which of the following terms correctly describes the risk to a private equity firm in long-term interest and exchange rates, and the provision that specifies the method of profit distribution between the limited partners (LPs) and general partner (GP), respectively? Risk in long-term rates Profit distribution A) Capital risk Carried interest B) Market risk Distribution waterfall C) Market risk Carried interest -------------------------------------------------------------------------------- Question 9 - 104100 Which of the following pairs correctly identifies the fees paid to agents for raising funds for the private equity firm, and the fees paid to the general partner (GP) for investment banking services, respectively? Fees to agents Fees to GP A) Transaction fees Administrative costs B) Administrative costs Placement fees C) Placement fees Transaction fees -------------------------------------------------------------------------------- Question 10 - 104098 A private equity investor expects to realize a return on her venture capital investment in two years and expects to sell the firm for $30 million. She estimates that a discount rate of 30% is reasonable but expects that there is a 20% probability of failure in any given year. The post-money value of her investment today, adjusted for failure, is closest to: A) $11.36. B) $11.20. C) $14.20. -------------------------------------------------------------------------------- Question 11 - 104090 Dr. Jason Bruno is a qualified investor in the US who is considering a $10 million investment in a private equity fund. Upon reading the fund’s prospectus, Dr. Bruno encounters several contract terms and expressions with which he is unfamiliar. In particular, he would like to know the meaning of ratchet and distributed paid-in capital (DPI). The most appropriate answer by the fund’s manager to Dr. Bruno would be that ratchet and DPI, respectively, is: Ratchet DPI A) The general partner’s share of fund profits The general partner’s realized return B) The allocation of equity between shareholders and management The limited partner’s realized return from the fund C) The year the fund was set up Dividends paid out as a fraction of paid-in capital

Q1.A? INV = 5m n =4 P1: 200 P2: 42 P3: 0 66.667+14 = 80.667 80.667 PV = 33.0412 PRE = 33.0412-5 = 28.0412 Q2.B? (guess) Q3.C? (guess) S1: FALSE (Earn-outs are mainly used in venture capital investments. They relate the acquisition price paid by the PE Firms to the future performance of the portfolio companies.) S2: TRUE Q4.A? (guess) (arr…Cash sweep is like debt repayment from excess cash???) Q5.A? (guess) Q6. XXX Q7. XXX Q8. B? (guess) Q9.C? (guess) Q10.A DR =62.5% 30/1.625*1.625 = 30/2.640625 = 11.36094 Q11. This is B! …Did I nuke all the 11 questions???

Cricket??? Questions: 11 Points Possible: 11 Points Correct: 8 Score: 73% Let me know which explainations you want Swap.

  1. Correct 2. Wrong 3. Wrong 4. Correct 5. Correct 6. Correct 7. Wrong 8-11. Correct.

ohh… how did I manage to get 8 correct. I was only confident on Q1, Q10 and Q11. Well the 33% probability sure works man!

hey what are the answers? I said 1) A (total guess) 2) B 3) B 4) C 5) A 6) B 7) B 8) A 9) C 10) A 11) B I really don’t feel comfortable on my answers for 2-6 tho.