Posted: November 16th, 2015

Private Equity

Private Equity

Complete first nine statements, and provide an explanation and an example.

1)      The pre-money (intuitively: the firm value prior to the transaction) valuation is / is not always non-negative.

2)      The pre-money valuation depends on / does not depend on the term-sheet.

3)      Disregarding taxes and the time value of money, if a fund has clawback provision, the deal-by-deal method of calculating carried interest results in the same/higher/lower cash flows to the GP and LP.

4)      All else equal, a management buyout of a firm typically delivers higher/lower returns to the holders of the firm’s debt than a leveraged buyout transaction.

5)      (A.5) In a tax-driven LBO transaction, the ratio of the estimated mean of equity returns and the estimated volatility of equity returns (also known as the Sharpe Ratio) is higher/lower/equal after the transaction than before.

6)       In a tax-driven LBO transaction, the ratio of the estimated mean of equity returns and the estimated volatility of equity returns (also known as the Sharpe Ratio) is higher/lower/equal after the transaction than before.

7)      “Carry” is a compensation mechanism that does / does not aligns LPs and GPs well

8)      If one raises more capital in a transaction (everything else being equal), then the post-money valuation increases/decreases but the pre-money valuation stays the same.

9)      An above average multiple on one’s invested capital always/sometimes/never implies an above average IRR.

10)   Large LPs should get better/worse terms than small LPs when negotiating a contract with the GP.

11)   In an LBO setting, increasing leverage increases/decreases/does not affect the return for the Equity investors

12)   In an LBO setting, increasing leverage increases/decreases/does not affect the return for the firm’s creditors (debtholders before the LBO)

13)   In an LBO setting, increasing leverage increases/decreases/does not affect the return for the selling shareholders.

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