An introduction to Private Equity, the private equity investment model, private equity strategy, private equity structure, private equity performance and how it is achieved
The document discusses key factors that determine venture capital deal terms. It notes that deal terms are influenced by the type of investor, size of the investor's fund, and economics of the investment opportunity. Some major deal elements discussed include preferred returns for investors, protection of investor valuation and position for future funding rounds, management rights for investors, and exit strategies for investors such as IPOs, acquisitions, and stock redemption.
An introduction to Private Equity, the private equity investment model, private equity strategy, private equity structure, private equity performance and how it is achieved
The document discusses key factors that determine venture capital deal terms. It notes that deal terms are influenced by the type of investor, size of the investor's fund, and economics of the investment opportunity. Some major deal elements discussed include preferred returns for investors, protection of investor valuation and position for future funding rounds, management rights for investors, and exit strategies for investors such as IPOs, acquisitions, and stock redemption.
The document discusses capital structure and the various sources of financing available to companies, including debt, equity, hybrid securities, and loan capital. It covers the relative costs and risks of different financing options. The key theories discussed are Modigliani-Miller theory, which establishes that capital structure does not affect firm value under certain assumptions, and the trade-off theory, which recognizes that while debt is cheaper than equity, it also carries higher financial risks. An optimal capital structure balances these costs and risks to minimize the weighted average cost of capital and maximize firm value.
This document discusses hybrid financing through preferred stock. Preferred stock is a type of stock that promises a fixed dividend but payment is at the discretion of the board. It has preference over common stock for dividend payments and claims on assets up to par value. Key features of preferred stock include cumulative dividends that must be paid before common dividends, participating dividends that increase with common dividends, and potential voting rights in special situations. Advantages are that missed preferred dividends do not cause bankruptcy as with bonds, it avoids dilution of common equity, and repayment is spread over long periods. Disadvantages are preferred dividends are not tax deductible, so cost is higher than debt, and their use increases financial risk and cost of
Bonds are a type of debt security where the issuer owes the bond holders interest payments and repayment of principal at maturity, with interest typically paid at fixed intervals. Bond holders are creditors who provide funds to the issuer in exchange for these payments. The major types of bonds include government bonds, corporate bonds, high yield bonds, zero coupon bonds, and convertible bonds.
This chapter discusses various capital budgeting techniques for evaluating investment projects, including net present value (NPV), internal rate of return (IRR), payback period, and profitability index. It recommends using NPV as the primary decision rule, as NPV accounts for the time value of money and considers all cash flows. IRR can produce incorrect decisions for projects with multiple IRRs, differing scales of investments, or non-standard cash flow timing. Payback period ignores the time value of money.
This document provides an overview of private equity, including:
- The structure of private equity funds and typical players like PE companies, banks, and management teams.
- Common private equity transactions like leveraged buyouts, management buyouts, and buy-and-build strategies.
- The private equity deal process from finding investments to exiting.
- Factors that make a company suitable for private equity investment and reasons for buyouts from owner and management perspectives.
- How private equity deals are structured, financing is arranged, and returns are evaluated differently than corporate acquisitions.
- Potential ethical issues around conflicts of interest, employee vulnerability, restructuring impacts, and tax avoidance.
This document classifies bonds based on the type of security backing the bond. It discusses four main classes: 1) debentures which are backed by the general credit and assets of the issuing company; 2) mortgage bonds which are backed by a pledge of specific property as collateral; 3) bonds backed by both the original collateral and the general credit of another guaranteeing company; and 4) joint bonds backed by the combined earnings of allied companies that jointly own collateral property. Within mortgage bonds, it further distinguishes between types of real estate mortgages and chattel mortgages.
The document discusses time value of money concepts including present and future value, compound interest, annuities, loans, mortgages, and other applications. Key equations for present value, future value, and annuities are presented along with examples showing how to apply the equations and use a financial calculator to solve time value of money problems.
Chapter15 International Finance ManagementPiyush Gaur
This document provides suggested answers and solutions to end-of-chapter questions from a textbook on international portfolio investment. It includes:
1) Answers to 12 multiple choice or short answer questions on topics like factors driving international investment, security return correlations across countries, world beta, and the impact of exchange rate fluctuations.
2) Solutions to 7 quantitative problems calculating returns, risks, and optimal portfolio weights for international investments considering exchange rate movements and correlations between different markets.
3) A description of input received from three consultants for a pension fund regarding the risks and rewards of international equity allocation, with two favoring it and one questioning the ability of international investing to reduce risk.
The document discusses the Altman Z-score formula, which was published in 1968 and can be used to predict bankruptcy. The formula uses five financial ratios to calculate a score. A score below 1.8 indicates likely bankruptcy, while a score between 1.8-3 means bankruptcy is possible and above 3 means the company is financially stable. The formula is: 1.2A+1.4B+3.3C+0.6D+1.0E. It requires data from a company's balance sheet and income statement. While the Z-score can help determine bankruptcy risk, it does not work for new companies and does not directly consider cash flow.
This document discusses mergers and acquisitions. It provides definitions of key terms like hostile and friendly mergers. It also outlines valid and questionable economic justifications for mergers. The document then discusses leveraged buyouts (LBOs), divestitures, and holding companies. It provides an example of an APV valuation of a target company, calculating the unlevered value, tax shield value, and overall value to an acquirer. It also discusses setting an appropriate bid price based on synergies between the acquirer and target.
1) The document discusses various methods and considerations for capital investment and budgeting decisions, including determining relevant cash flows, accounting for inflation, and different approaches to calculating operating cash flow.
2) It emphasizes that capital budgeting decisions should be based on incremental after-tax cash flows rather than accounting profits and highlights factors like sunk costs, opportunity costs, and side effects.
3) The document provides a detailed example of a capital budgeting analysis for a company considering investing in a new machine and outlines the calculation of cash flows and net present value.
4) It addresses special considerations like how to incorporate inflation, evaluate projects of unequal lengths, and use
Strategic Financial Management supports management in making informed decisions.
Candidates are expected to apply relevant knowledge in recommending appropriate
options for financing a business, recognising and managing financial risks and investments.
Professional accountants need a strong background in: Accounting, Economics, Law,
Mathematics and Behavioural Sciences
This chapter discusses long-term financing options for corporations including common stock, corporate long-term debt, and preferred stock. It notes that internally generated cash flows dominate as a source of financing for Canadian firms. When firms spend more than they generate internally, they finance the gap through new sales of debt and equity. However, net new equity issues are dwarfed by new sales of debt. The chapter outlines the key characteristics and tax implications of the different long-term financing instruments.
The document discusses capital structure and the various sources of financing available to companies, including debt, equity, hybrid securities, and loan capital. It covers the relative costs and risks of different financing options. The key theories discussed are Modigliani-Miller theory, which establishes that capital structure does not affect firm value under certain assumptions, and the trade-off theory, which recognizes that while debt is cheaper than equity, it also carries higher financial risks. An optimal capital structure balances these costs and risks to minimize the weighted average cost of capital and maximize firm value.
This document discusses hybrid financing through preferred stock. Preferred stock is a type of stock that promises a fixed dividend but payment is at the discretion of the board. It has preference over common stock for dividend payments and claims on assets up to par value. Key features of preferred stock include cumulative dividends that must be paid before common dividends, participating dividends that increase with common dividends, and potential voting rights in special situations. Advantages are that missed preferred dividends do not cause bankruptcy as with bonds, it avoids dilution of common equity, and repayment is spread over long periods. Disadvantages are preferred dividends are not tax deductible, so cost is higher than debt, and their use increases financial risk and cost of
Bonds are a type of debt security where the issuer owes the bond holders interest payments and repayment of principal at maturity, with interest typically paid at fixed intervals. Bond holders are creditors who provide funds to the issuer in exchange for these payments. The major types of bonds include government bonds, corporate bonds, high yield bonds, zero coupon bonds, and convertible bonds.
This chapter discusses various capital budgeting techniques for evaluating investment projects, including net present value (NPV), internal rate of return (IRR), payback period, and profitability index. It recommends using NPV as the primary decision rule, as NPV accounts for the time value of money and considers all cash flows. IRR can produce incorrect decisions for projects with multiple IRRs, differing scales of investments, or non-standard cash flow timing. Payback period ignores the time value of money.
This document provides an overview of private equity, including:
- The structure of private equity funds and typical players like PE companies, banks, and management teams.
- Common private equity transactions like leveraged buyouts, management buyouts, and buy-and-build strategies.
- The private equity deal process from finding investments to exiting.
- Factors that make a company suitable for private equity investment and reasons for buyouts from owner and management perspectives.
- How private equity deals are structured, financing is arranged, and returns are evaluated differently than corporate acquisitions.
- Potential ethical issues around conflicts of interest, employee vulnerability, restructuring impacts, and tax avoidance.
This document classifies bonds based on the type of security backing the bond. It discusses four main classes: 1) debentures which are backed by the general credit and assets of the issuing company; 2) mortgage bonds which are backed by a pledge of specific property as collateral; 3) bonds backed by both the original collateral and the general credit of another guaranteeing company; and 4) joint bonds backed by the combined earnings of allied companies that jointly own collateral property. Within mortgage bonds, it further distinguishes between types of real estate mortgages and chattel mortgages.
The document discusses time value of money concepts including present and future value, compound interest, annuities, loans, mortgages, and other applications. Key equations for present value, future value, and annuities are presented along with examples showing how to apply the equations and use a financial calculator to solve time value of money problems.
Chapter15 International Finance ManagementPiyush Gaur
This document provides suggested answers and solutions to end-of-chapter questions from a textbook on international portfolio investment. It includes:
1) Answers to 12 multiple choice or short answer questions on topics like factors driving international investment, security return correlations across countries, world beta, and the impact of exchange rate fluctuations.
2) Solutions to 7 quantitative problems calculating returns, risks, and optimal portfolio weights for international investments considering exchange rate movements and correlations between different markets.
3) A description of input received from three consultants for a pension fund regarding the risks and rewards of international equity allocation, with two favoring it and one questioning the ability of international investing to reduce risk.
The document discusses the Altman Z-score formula, which was published in 1968 and can be used to predict bankruptcy. The formula uses five financial ratios to calculate a score. A score below 1.8 indicates likely bankruptcy, while a score between 1.8-3 means bankruptcy is possible and above 3 means the company is financially stable. The formula is: 1.2A+1.4B+3.3C+0.6D+1.0E. It requires data from a company's balance sheet and income statement. While the Z-score can help determine bankruptcy risk, it does not work for new companies and does not directly consider cash flow.
This document discusses mergers and acquisitions. It provides definitions of key terms like hostile and friendly mergers. It also outlines valid and questionable economic justifications for mergers. The document then discusses leveraged buyouts (LBOs), divestitures, and holding companies. It provides an example of an APV valuation of a target company, calculating the unlevered value, tax shield value, and overall value to an acquirer. It also discusses setting an appropriate bid price based on synergies between the acquirer and target.
1) The document discusses various methods and considerations for capital investment and budgeting decisions, including determining relevant cash flows, accounting for inflation, and different approaches to calculating operating cash flow.
2) It emphasizes that capital budgeting decisions should be based on incremental after-tax cash flows rather than accounting profits and highlights factors like sunk costs, opportunity costs, and side effects.
3) The document provides a detailed example of a capital budgeting analysis for a company considering investing in a new machine and outlines the calculation of cash flows and net present value.
4) It addresses special considerations like how to incorporate inflation, evaluate projects of unequal lengths, and use
Strategic Financial Management supports management in making informed decisions.
Candidates are expected to apply relevant knowledge in recommending appropriate
options for financing a business, recognising and managing financial risks and investments.
Professional accountants need a strong background in: Accounting, Economics, Law,
Mathematics and Behavioural Sciences
This chapter discusses long-term financing options for corporations including common stock, corporate long-term debt, and preferred stock. It notes that internally generated cash flows dominate as a source of financing for Canadian firms. When firms spend more than they generate internally, they finance the gap through new sales of debt and equity. However, net new equity issues are dwarfed by new sales of debt. The chapter outlines the key characteristics and tax implications of the different long-term financing instruments.
The document discusses how stock prices are discovered in the market based on a company's earnings per share and market demand and sentiment. It provides an example of how an initial stock price of Rs. 100 per share could increase to Rs. 1200 per share if the company's earnings per share rises from Rs. 10 to Rs. 100 due to increased demand for the company's products, causing the price-to-earnings ratio to rise from 10 to 12. This demonstrates how both earnings and market demand factor into a stock's market price.