EEE 4653 ACTUAL STUDY QUESTIONS AND
ANSWERS SET A+
✔✔Increase Pre-Money with Dividend Addition
"Trade Offs" - ✔✔Dividend Rate (i.e. %) Only Accrues on Original Investment Amount
(i.e. "simple interest") versus Original Investment PLUS Unpaid Accrued Dividends (i.e.
"compounding interest)
✔✔Increase Pre-Money Valuations as Dividend Rate
"Trade Offs" - ✔✔Increases (fundamentally increasing Liquidation Multiplier by Dividend
Rate X Projected years - at 10% per year over five years equates to an additional 0.5X
or 50% increase)
✔✔Increase Pre-Money Valuations as "Liquidation Multiple"
"Trade Offs" - ✔✔EXCEEDS a 1.0X
✔✔Term Sheet Function/Purpose - ✔✔-Written consensus of agreed upon major
investment parameters
-Outline for legal preparation of Closing Documents
-Prospective Co-Investor communication tool
-Account for ALL equity - outstanding or potential obligations
✔✔Written consensus of agreed upon major investment parameters (Function of Terms
Sheet) - ✔✔Mitigates or minimizes company/investor disputes during the final due
diligence/closing process
✔✔Outline for legal preparation of Closing Documents (Function of Terms Sheet) - ✔✔-
Guidance to "external" Attorneys
-Serves to "lower" potentially expensive legal documents
✔✔Prospective Co-Investor communication tool (Function of Terms Sheet) -
✔✔Contributes to a consensus across range of investors
ANSWERS SET A+
✔✔Increase Pre-Money with Dividend Addition
"Trade Offs" - ✔✔Dividend Rate (i.e. %) Only Accrues on Original Investment Amount
(i.e. "simple interest") versus Original Investment PLUS Unpaid Accrued Dividends (i.e.
"compounding interest)
✔✔Increase Pre-Money Valuations as Dividend Rate
"Trade Offs" - ✔✔Increases (fundamentally increasing Liquidation Multiplier by Dividend
Rate X Projected years - at 10% per year over five years equates to an additional 0.5X
or 50% increase)
✔✔Increase Pre-Money Valuations as "Liquidation Multiple"
"Trade Offs" - ✔✔EXCEEDS a 1.0X
✔✔Term Sheet Function/Purpose - ✔✔-Written consensus of agreed upon major
investment parameters
-Outline for legal preparation of Closing Documents
-Prospective Co-Investor communication tool
-Account for ALL equity - outstanding or potential obligations
✔✔Written consensus of agreed upon major investment parameters (Function of Terms
Sheet) - ✔✔Mitigates or minimizes company/investor disputes during the final due
diligence/closing process
✔✔Outline for legal preparation of Closing Documents (Function of Terms Sheet) - ✔✔-
Guidance to "external" Attorneys
-Serves to "lower" potentially expensive legal documents
✔✔Prospective Co-Investor communication tool (Function of Terms Sheet) -
✔✔Contributes to a consensus across range of investors