Let’s go with C for the PE question
The most relevant market risk to a private equity investor is: A) long-term macro changes only. B) short-term macro changes only. C) both short-term and long-term macro changes. I would think A?
Your answer: C was incorrect. The correct answer was A) long-term macro changes only. Private equity investments are affected to a large degree by long-term macro- factors such as interest rate and exchange rate fluctuations and various market risks. Short-term macro-factors and short-term fluctuations are less relevant as the investor’s time horizon typically exceeds 10 years. When calculating the cash flows of a leveraged buyout investment from net income, the effect on cash flows of reinvested depreciation and a decrease in net working capital (NWC), respectively, is: Reinvested depreciation Decrease in NWC A) Decrease Decrease B) Increase Decrease C) Decrease Increase
sorry guys meeting…
Your answer: A was incorrect. The correct answer was C) Decrease Increase While depreciation is a non-cash item that is to be added back to net income, reinvested depreciation is a cash outlay and should be subtracted. NWC is current assets less current liabilities. A decrease in NWC is a cash inflow (think cash from the sale of inventory), while an increase in NWC is a cash outflow. A cash sweep in an LBO transaction is the: A) excess profit paid out to the general partner. B) excess profit paid out to the limited partners. C) excess cash used to pay down debt.
Market risk for PE andswer is A…they are in it for the long haul.
Deprecuation is first added to calculate NI, then reinvested depreciation is subtracted. So it is an Decrease. Decrease in NWC is an increase. So Choice c
cp? hsia?
A cash sweep in an LBO transaction is the: A) excess profit paid out to the general partner. B) excess profit paid out to the limited partners. C) excess cash used to pay down debt. Ummm…B
C) excess cash used to pay down debt.
Your answer: C was correct! A cash sweep refers to the excess cash from an LBO that is used to pay down debt. Typically senior debt is paid down first, followed by junior debt based on seniority. Which of the following is the least likely source of return for the private equity owners of a leveraged buyout investment (LBO)? A) Recapitalization. B) Dividends. C) Private sale.
B - Dividends
Your answer: B was correct! The private equity investors in an LBO generally do not receive dividends from the LBO. Their return is realized only at the time the LBO is sold or liquidated through an IPO, private sale, or recapitalization. Recapitalization is the restructuring of a company’s debt and equity mixture, such as issuing stock to repay debt and to increase equity capital. If a firm has debt on its balance sheet, its equity beta will be: A) higher than its asset beta. B) lower than its asset beta. C) the same as its asset beta.
Good Lord, I am going to be a PE expert after this. Which of the following is the least likely source of return for the private equity owners of a leveraged buyout investment (LBO)? A) Recapitalization. B) Dividends. C) Private sale. Is it C?
A
Damn, I know nothing: Lower than its asset beta B
Sorry if I’m going to fast for some of you. I was going to do corp fin per request, however I do not have my calculator at work. So I’m sticking with the conceptual questions. A) higher than its asset beta. Remember, Private Equity is a totally new topic this year. It is reasonably foreseeable that an item set will be included for it.
I rock !
higher…
An Australian managed futures fund is considering a speculative investment in commodity futures. If the fund is seeking investments with the smallest deviation from their theoretical minimum and maximum values, it would most likely invest in: A) neither silver nor energy futures. B) energy but not silver futures. C) silver but not energy futures.