FIN 6100 Exam 3 Questions With Complete Solutions
5 types of decision rules Correct Answers 1. Payback Period
2. Discounted Payback Period
3. IRR
4. NPV
5. Profitability index
Best efforts offering vs. Fixed price/firm commitment offering
Correct Answers Best efforts:
investment bank acts as the broker, gets a percentage from the
sale and the firm holds the securities and the risk.
fixed price: investment bank buys at a 15-20% discount, takes
the risk, and sells the securities.
Do VCs invest all the money in you at once? Correct Answers
No, they stagger payments through the years in "tranches"
if you reach your goals, you get a payment. If you don't, they
take over or get out.
How are VCs structured? (2) Correct Answers short-term, 10
years
small group of general partners. fund, exit, fund.
If you are expecting positive cash flows, do you want to use
MACRS or straight line depreciation? Correct Answers
MARCS.
, if you are expecting a loss, use straight line. often used for new
businesses with uncertain income.
Lifecycle of VC (3) Correct Answers 1-3 yrs: raise money, find
projects to invest in.
4-5yrs: grow portfolio
last 3 yrs: harvest investment
Money market vs capital markets Correct Answers money
market = short term (less than a year)
capital market = long term (more than a year)
Primary market vs. Secondary market Correct Answers Primary
Market:
not the general public. Investment banks, mutual funds, pension
funds, insurance companies, etc.
Secondary market: the general public.
Pros and cons of a VC (2,3) Correct Answers pros:
- assess to large amount of capital quickly
- access to expertise and experience
cons:
- give up equity
- give up control
- lose flexibility
5 types of decision rules Correct Answers 1. Payback Period
2. Discounted Payback Period
3. IRR
4. NPV
5. Profitability index
Best efforts offering vs. Fixed price/firm commitment offering
Correct Answers Best efforts:
investment bank acts as the broker, gets a percentage from the
sale and the firm holds the securities and the risk.
fixed price: investment bank buys at a 15-20% discount, takes
the risk, and sells the securities.
Do VCs invest all the money in you at once? Correct Answers
No, they stagger payments through the years in "tranches"
if you reach your goals, you get a payment. If you don't, they
take over or get out.
How are VCs structured? (2) Correct Answers short-term, 10
years
small group of general partners. fund, exit, fund.
If you are expecting positive cash flows, do you want to use
MACRS or straight line depreciation? Correct Answers
MARCS.
, if you are expecting a loss, use straight line. often used for new
businesses with uncertain income.
Lifecycle of VC (3) Correct Answers 1-3 yrs: raise money, find
projects to invest in.
4-5yrs: grow portfolio
last 3 yrs: harvest investment
Money market vs capital markets Correct Answers money
market = short term (less than a year)
capital market = long term (more than a year)
Primary market vs. Secondary market Correct Answers Primary
Market:
not the general public. Investment banks, mutual funds, pension
funds, insurance companies, etc.
Secondary market: the general public.
Pros and cons of a VC (2,3) Correct Answers pros:
- assess to large amount of capital quickly
- access to expertise and experience
cons:
- give up equity
- give up control
- lose flexibility
