Private Equity and Venture Capital Coursera Quiz Answers

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Private Equity and Venture Capital Coursera Quiz Answers

Week 1: Private Equity and Venture Capital

Q1. Why is seed financing very risky?

• The PEI deals with the banking system in this phase.
• Practitioners say that out of 100 projects you will only find only 10 successful ones.
• In order to find a successful project, the PEI will have lost a lot of money on other losing projects.

Q2. Why should a company choose PE over a mortgage or loan?

• The interest rates are much lower than those of a mortgage.
• The PEI, contrary to a Bank, will not intervene in case a company does not meet its covenants.
• Besides the provision of financial aid, the PEI becomes an active owner of the company.

Q3. Which of the following statements describes the mechanism of a PE investment?

• The PEI injects cash in the VBC and gets equity.
• The PEI injects cash in the VBC and gets debt.
• The PE agrees to new conditions with banks on behalf of the VBC.

Q4. What is the twofold nature of PE?

• PE is a source of financing and investment.
• PE is a source of financing and capital gain.
• PE is a source of financing and governance.

Q5. What is the certification benefit?

• When a PEI invests in company, there is an official certification of good health issued by the PEI.
• A PEI invests a lot of time in the screening phase to scout a VBC. When a company is selected that means that it has growth potential.
• When a PEI invests in a company, the PEI will receive shares of the VBC, which will be listed on the Stock Exchange.

Q6. What is the main difference between Restructuring and Distressed Financing?

• Restructuring occurs when the company is still alive, whereas Distressed financing occurs when the company is dead.
• Distressed financing occurs when the company is still alive, whereas restructuring financing occurs when the company is dead.
• Restructuring financing is regulated by Chapter 11, whereas Distressed Financing is not.

Q7. What is the right kind of financing in the development phase?

• Financial markets.
• Family and friends.
• Banking system.

Q8. When does the development phase occur?

• When the company does not exist yet.
• When the company is planning to expand itself through expansion financing.
• When the company has just started its operations.

Q9. What statement defines Venture Capital?

• VC differs from PE in that it deals with the early stage of a company’s life.
• VC financing can only be done through debt capital.
• VC is the PE financing the earliest stage of a company’s activities.

Q10. Which of the following is a critical issue to manage in seed financing?

• Giving strong support to face risks linked to a fast process of growth.
• Being ready to even create a market for the output generated by the VBC.
• Giving strong support to manage strategic decisions.

Week 2: Private Equity and Venture Capital

Q1. What is an AMC?

• A financial institution managing a closed-end fund
• A vehicle created with the unique purpose to invest in funds
• A financial institution managed by the closed-end fund

Q2. Who can invest in a closed-end fund?

• Banks, insurance companies, and pension funds
• Governments, insurance companies, and AMCs
• Banks, insurance companies, and AMCs

Q3. How does the remuneration work in CEF?

• The AMC receives a yearly management fee and a carried interest at the end of the life of the closed-end fund.
• The AMC receives a yearly management fee whereas the investors receive a carried interest.
• The investors receive a yearly fee and a carried interest at the end of the life of the closed-end fund..

Q4. What is a VCF?

• An instrument operating in the US, investing in any kind of PE.
• An Anglo-Saxon instrument investing in any kind of PE.
• A US instrument investing in venture capital.

Q5. What is true about remuneration in a SBIC?

• Profits and losses are equally shared between the two groups of shareholders.
• Losses are borne by the public admin twice as much as the other shareholders.
• Both groups of shareholders receive management fees.

Q6. How do banks usually participate in PE?

• They always directly invest in PE.
• They only engage in hedge funds to invest in PE.
• They invest in closed-end fund and so that they can participate in PE activities.

Q7. What is participation exemption?

• A mechanism by which a taxation equal to 0% is granted to investors receiving capital gain
• A mechanism in which there is a lower level of taxation on capital gain when some conditions occur
• A mechanism in which a lower level of taxation is granted to investors for capital gains without any particular conditions

Q8. Which among the following statements concerning taxation and the incentives to startup is correct?

• The thin cap mechanism sets a limit for the company to use interest rate to reduce the fiscal burden.
• The mark-down mechanism entails a reduction in the tax rate without any particular conditions.
• Tax transparency sets a tax burden at 0% for a newly founded company.

Q9. Suppose there is a fund with the following features:

1. Fund Global IRR: 350%
2. Hurdle Rate: 8%
3. Fund Carried interest: 106%
4. Final Amount: 1,929

Find the remunerations for the managers
(Please round the calculation second digit)

• 454.39
• 584.21
• 462.62

Q10. What does “being fully liable” mean in the management of a VCF?

• The GPs are responsible for the liabilities of the VCF.
• The LPs are responsible for the liabilities of the VCF.
• The AMC is responsible for the liabilities of the VCF.

Week 3: Private Equity and Venture Capital

Q1. Which of the following statements about the managerial process is true?

• Investing, managing & monitoring, and exiting may potentially start at the same time.
• Fundraising, investing, managing & monitoring, and exiting start at the same time.
• The managerial process is sequential and these activities follow one the other: fundraising, investing, managing & monitoring, and exiting.

Q2. What is one of the main purposes of the managing and monitoring phase?

• To select the investments in which the venture has to invest.
• To sell the equity owned in the portfolio in order to have a gain.
• To ensure the creation of value of the fund.

Q3. When talking about fundraising in the managerial process, what is the “proposal?”

• A business idea of the investment that will be made by the fund
• A business idea the AMC prepares to attract other managers
• A business idea leading to the creation of the vehicle that will invest in PE

Q4. Which among the following statements about the “job selling” is FALSE?

• Managers have to convince the investors about the merits of the idea.
• Regardless of the country in which the legal entity is based, “job selling” is always followed by the closing phase.
• Managers have to convince the investors to invest in the idea.

Q5. In the managerial process, the closing activity occurs for…

• venture capital funds, as well as for closed-end funds.
• VC funds only and for closed-end funds which leveraged.
• funds which invested in seed financing only.

Q6. What two moments form the investing phase?

• Origination and screenig
• Decision-making and deal-making
• Business idea creation and selling job

Q7. What is the main goal of the screening step in the investing phase?

• To find other potential shareholders, such is the case for closed-end funds
• To find the most suitable partners
• To find the potential venture in which the PEI will invest

Q8. Which among the following statements about the negotiation step in the investing phase is true?

• The investors negotiate with the entrepreneur the value of the shares.
• The actors involved have to calculate the number of shares the PE firm will own.
• The PEI has to notify the investors the numbers of shares the firm will hold.

Q9. What is meant by “managing” as a part of the managerial process?

• The PEI has to value and select the potential investments.
• The PEI has to protect the value generated and they have to take actions to protect value.
• The PEI has to make sure the company generates value and they have to take actions to create it.

Q10. What is trade sale?

• It is the sale of the stake in the VBC to another corporation or another entrepreneur.
• It is the sale of the stake held in the VBC to another shareholder.
• It is the sale to a trade bank.

Week 4: Private Equity and Venture Capital

Q1. Why is company valuation important within PE?

• Depending on the value of the VBC the PEI will choose either to buy existing or newly issued shares.
• Depending on the value of the VBC the PE will choose between the hands-on or hands-off approach.
• Depending on the value of the VBC the PEI will choose between the US format or the EU format.

Q2. Consider the DCF model. Which among the following effects on equity value is correct?

• The higher the surplus assets are, the higher the equity value is.
• The higher the NFP is, the higher the equity value.
• The higher the WACC is, the lower the equity value is.

Q3. What is enterprise value?

• If some conditions occur, the enterprise value is equal to the sum of the cash flow generated by the VBC at the time of the valuation and the terminal value.
• If some conditions occur, the enterprise value is equal to the sum of the cash flow generated by the VBC at the time of the valuation + NFP.
• If some conditions occur, the enterprise value is equal to the cash flow generated by the VBC at the time of the valuation minus the terminal value.

Q4. Which among the following multiples better expresses the capability of the company to generate gross margin?

• EV/EBITDA
• EV/Sales
• EV/EBIT

Q5. What is WACC?

• An average between the cost of debt net of tax and cost of equity
• An average cost of debt capital
• An average cost of equity capital

Q6. Use the DCF model. Say the following is given:

1. Company A has D/E = 1 and β=0.85
2. Company B has D/E = 1.5 and β=0.92
3. the VBC has D/E = 1
4. the tax burden is 20%,

find relevered β for the target company
(no rounding)

• 3,186
• 0.7965
• 0.885

Q7. Find the WACC given the following data:

• D= 60
• E=55
• cost of equity = 7.25%
• t=25%
• (round to the second digit)
• 5.15%
• 4.55%

It is not possible to say due to some missing data.

Q8. What is the biggest trade off when calculating equity value?

• The PEI wants the equity value to be as low as possible in the beginning of the investment while the value has to be as large as possible at the end of the investment.
• You want your counterpart to file for Chapter 11.
• You want your counterpart to know that you want to launch an IPO.

Q9. What is the main goal of the VCM?

• To find the number of shares a PEI has to buy
• To find IRR
• To find the number of existing shares

Q10. Use the VCM to find the right percentage (%) of shares the PE should have:

Value of the investment= 3,800,000

IRR = 40%

• Holding Period = 4 years

Net Income (Year N) = 2,600,000

PE ratio = 13

• 43.19%
• It is not possible to say due to missing data.
• 15.74%

Week 5: Private Equity and Venture Capital

Q1. Why is protection not always granted during a PE deal?

• These deals can take place without legal approval.
• PE deals can last for more than twelve months.
• The deal is the outcome of a negotiation process.

Q2. What is the knowledge effect?

• The positive effect on the cost of capital
• The signal of great health of the company given to the market when a company is selected as a VBC
• Hard and soft knowledge that can be transferred to a company by a PEI

Q3. What are the elements that make up the regulatory framework in the Anglo-Saxon world?

• Common law, ad hoc fiscal rules, and special regulations for the PE world
• Common law and ad hoc fiscal rules
• Common law and regulations issued by a supervisor

Q4. Suppose there is a fund with the following features:

1. Fund Global IRR: 365%
2. Hurdle Rate: 8%
3. Fund Carried interest: 108%
4. Final Amount: 1,856.

Find the remunerations for the managers
(round the calculation second digit)

• 431.07
• 399.14
• 549.17

Q5. What are some of the risks on the investors’ side for which one should take actions to protect value?

• Wrong industrial management decisions
• New shareholders entrance
• Psychological constraints on management

Q6. Use the VCM.

• Holding Period = 6 years
• % shares = 50%
• Value of the investment = 3,250,000
• Numbers of shares issues and bought by the PE = 116,783.

Find the Price of the newly issued shares.
(round to the second digit)

• 2.44
• 27.83
• 13.91

Q7. Which among the following is a requirement for an AMC operating in a closed-end fund environment?

• The AMC must own in every fund, which must be equal to 2% of the fund.
• It can create a joint venture and invest 50% in the fund.
• It must own 1% of the funds in which it plans to invest.

Q8. Why is seed financing very risky?

• The PEI deals with the banking system in this phase.
• In order to find a successful project, the PEI will have lost a lot of money on other losing projects.
• Practitioners say that out of 100 projects you will only find only 10 successful ones.

Q9. What two moments form the investing phase?

• Decision-making and deal-making.
• Origination and screenig
• Business idea creation and selling job
• Q10. Why is company valuation important within PE?

• Depending on the value of the VBC the PE will choose between the hands-on or hands-off approach.
• Depending on the value of the VBC the PEI will choose either to buy existing or newly issued shares.
• Depending on the value of the VBC the PEI will choose between the US format or the EU format.

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