Private Equity Application Quiz!

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| By Damian Mills
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Damian Mills
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  • 1/13 Questions

    Select the most appropriate description of the strategy described below: A company acquires a controlling interest in another company using mostly debt to finance the purchase. The acquiring company (or companies) normally put up a very small amount of equity to close the deal, as well as a very large amount of debt. The assets of the company that is being acquired are used as collateral for the debt being used to finance the transaction. If the deal goes through, then a large amount of debt that was used to complete the transaction will be paid off using the cash flow or assets of the acquired company.

    • Growth capital
    • Venture capital
    • Investment banking
    • Leveraged buyout
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About This Quiz

The 'Private Equity Application Quiz!' assesses understanding of investment strategies, particularly leveraged buyouts, and the role of investment banking vs. Private equity. It's designed for learners to evaluate their grasp on private equity's operational and strategic aspects.

Private Equity Application Quiz! - Quiz

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  • 2. 

    Investment banking is typically an advisory/capital raising service, while private equity is an investment business.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Investment banking is a financial service that primarily focuses on providing advisory and capital raising services to corporations, governments, and other institutions. On the other hand, private equity is an investment business that involves investing in companies and acquiring ownership stakes. This statement correctly distinguishes between the two, stating that investment banking is primarily an advisory and capital raising service, while private equity is an investment business. Therefore, the answer "True" is correct.

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  • 3. 

    On average, a private equity group looks at around 100 opportunities to make one deal. 

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Private equity groups typically evaluate numerous opportunities before deciding to make an investment. This is because they have specific criteria and standards that need to be met in order to ensure a successful deal. By reviewing a large number of opportunities, they can carefully select the most promising ones that align with their investment strategies and goals. Therefore, it is true that a private equity group typically looks at around 100 opportunities to make one deal.

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  • 4. 

    Which of the following is the least likely objection to be raised by a private equity prospect?

    • We do all our industry research in-house

    • Your reports are not niche enough for the industries we target

    • The industry reports do not have the level of detail that we require

    • We never have any use for industry information

    Correct Answer
    A. We never have any use for industry information
    Explanation
    The least likely objection to be raised by a private equity prospect is "We never have any use for industry information." This is because industry information is crucial for private equity firms to make informed investment decisions. It helps them understand market trends, competitive landscape, and potential risks and opportunities in the industry they are targeting. Private equity firms heavily rely on industry research to assess investment opportunities and create value in their portfolio companies. Therefore, it is highly unlikely for a private equity prospect to claim that they never have any use for industry information.

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  • 5. 

    The breadth of IBISWorld's Industry report collection helps private equity clients by giving them access to a large collection of supply chain information. How is this most useful to private equity clients?

    • Helps them make well-informed procurement decisions.

    • Introduces them to industry jargon.

    • Helps them to "stress-test" their portfolio.

    • Allows them to get the complete picture of a firm’s business environment.

    Correct Answer
    A. Allows them to get the complete picture of a firm’s business environment.
    Explanation
    The breadth of IBISWorld's Industry report collection provides private equity clients with access to a large collection of supply chain information. This enables them to gather comprehensive information about a firm's business environment, including factors such as market trends, competitive landscape, and potential risks. By obtaining a complete picture of the firm's business environment, private equity clients can make more informed investment decisions and assess the potential impact on their portfolio.

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  • 6. 
    Read the following information about how we help Harvest Capital Credit, one of our private equity clients: Key reports and sections: iExpert, Key External Drivers, Key Success Factors, and Key Statistics. Unbiased information: Uncover industry threats and opportunities, and expected future performance from a credible and unbiased source, that a company may not be forthcoming about. Crosscheck applicant’s books: Applications can be biased as trying to make the company look the best it can, our reports help to paint the whole picture for industry performance to make a more informed decision. Which of the following is not a key way that IBISWorld helps Harvest Capital Credit? - ProProfs

    Read the following information about how we help Harvest Capital Credit, one of our private equity clients: Key reports and sections: iExpert, Key External Drivers, Key Success Factors, and Key Statistics. Unbiased information: Uncover industry threats and opportunities, and expected future performance from a credible and unbiased source, that a company may not be forthcoming about. Crosscheck applicant’s books: Applications can be biased as trying to make the company look the best it can, our reports help to paint the whole picture for industry performance to make a more informed decision. Which of the following is not a key way that IBISWorld helps Harvest Capital Credit?

    • Applicants will try to portray themselves in the best light possible, and IBISWorld reports help HCC make a more informed decision

    • IBISWorld Industry data, in conjunction with client metrics, helps HCC to price loans

    • IBISWorld provides a credible and unbiased source to help uncover threats and opportunities

    Correct Answer
    A. IBISWorld Industry data, in conjunction with client metrics, helps HCC to price loans
    Explanation
    The correct answer is "IBISWorld Industry data, in conjunction with client metrics, helps HCC to price loans." This is not a key way that IBISWorld helps Harvest Capital Credit because the information provided in the passage does not mention anything about using IBISWorld data to price loans. The passage only mentions that IBISWorld provides unbiased information to uncover threats and opportunities and helps to paint the whole picture of industry performance for a more informed decision-making process.

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  • 7. 

    Which of the following is among the most common investment strategies in private equity? 

    • Leveraged buyouts

    • Audit & assurance

    • Venture capital

    • Distressed investmets

    • Corporate banking

    Correct Answer(s)
    A. Leveraged buyouts
    A. Venture capital
    A. Distressed investmets
    Explanation
    Leveraged buyouts, venture capital, and distressed investments are among the most common investment strategies in private equity. Leveraged buyouts involve acquiring a company using a significant amount of borrowed money. Venture capital refers to investing in startups and small businesses with high growth potential. Distressed investments involve purchasing assets or securities of companies that are in financial distress. These strategies are popular in private equity as they offer opportunities for high returns on investment.

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  • 8. 

    Which of the following best describes mezzanine investment?

    • Refers to debt capital that gives the lender the right to convert to an ownership interest in a firm if the loan is not paid back on time and in full.

    • Refers to investments in the equity or debt of temporarily financially stressed firms (that are sound over the medium-term).

    • Refers to raising acquisition debt against the future cashflow of the company, which is then used to make interest and principal payments.

    • Refers to funding a company prior to its start up, or during its early life cycle.

    Correct Answer
    A. Refers to debt capital that gives the lender the right to convert to an ownership interest in a firm if the loan is not paid back on time and in full.
    Explanation
    Mezzanine investment refers to debt capital that gives the lender the right to convert to an ownership interest in a firm if the loan is not paid back on time and in full. This means that if the borrower fails to repay the loan according to the agreed terms, the lender has the option to convert their debt into equity ownership in the company. This type of investment is often used to provide additional financing to a company and offers the lender the potential for higher returns if the company performs well.

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  • 9. 

    When economic conditions are good, private equity groups are more likely to venture outside their niche – providing us an opportunity to sell. 

    • True

    • False

    Correct Answer
    A. False
    Explanation
    During good economic conditions, private equity groups tend to focus on their niche rather than venturing outside of it. This is because they are more confident in the success of their investments within their specialized area. Therefore, the statement that economic conditions being good leads to private equity groups venturing outside their niche is false.

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  • 10. 

    How do private equity firms generally receive a return on their investment?

    • An IPO, when the firm is offered for sale to the public

    • Merger or acquisition, when a company is sold for cash or shares in another company

    • Transfer pricing, the setting of the price for goods and services sold between controlled legal entities within an enterprise

    • Recapitalization, when cash or debt is raised against future cash flow

    Correct Answer(s)
    A. An IPO, when the firm is offered for sale to the public
    A. Merger or acquisition, when a company is sold for cash or shares in another company
    A. Recapitalization, when cash or debt is raised against future cash flow
    Explanation
    Private equity firms generally receive a return on their investment through various means. One way is through an IPO, where the firm is offered for sale to the public. Another way is through a merger or acquisition, where the company is sold for cash or shares in another company. Recapitalization is also a method, where cash or debt is raised against future cash flow. These different strategies allow private equity firms to generate returns on their investments.

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  • 11. 

    Which of the following are questions that help BDMs understand the needs of private equity prospects? 

    • Do you have any uncommitted funds at the moment?

    • How do your Credit Analysts assess whether the loan applicant’s evidence is credible?

    • What marketing tools are you currently using?

    • How do you monitor your portfolio of investments?

    • How many prospects do you research to identify attractive business opportunities?

    Correct Answer(s)
    A. Do you have any uncommitted funds at the moment?
    A. How do you monitor your portfolio of investments?
    A. How many prospects do you research to identify attractive business opportunities?
    Explanation
    The correct answer is: Do you have any uncommitted funds at the moment?, How do you monitor your portfolio of investments?, How many prospects do you research to identify attractive business opportunities?

    These questions are relevant for BDMs (Business Development Managers) to understand the needs of private equity prospects. Asking about uncommitted funds helps determine the availability of funds for potential investments. Inquiring about portfolio monitoring provides insights into the prospect's investment management practices. Lastly, asking about the number of prospects researched indicates the level of effort put into identifying attractive business opportunities.

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  • 12. 

    If a private equity prospect asks who IBISWorld's main competitors are, which of the following could you include in your response? 

    • IBISWorld doesn't have a direct competitor - there are similar companies but none with the breadth and range of Industry research we produce.

    • There are no other companies producing Industry research.

    • Clients say First Research meets certain needs, but is designed for sales teams. IBISWorld is more tailored to PEG needs.

    • All of the analysis that we produce can be found on the Internet for free, but it would take you a few hours to put it together.

    Correct Answer(s)
    A. IBISWorld doesn't have a direct competitor - there are similar companies but none with the breadth and range of Industry research we produce.
    A. Clients say First Research meets certain needs, but is designed for sales teams. IBISWorld is more tailored to PEG needs.
    Explanation
    The correct answer includes two statements that explain the competitors of IBISWorld. The first statement mentions that there are similar companies, but none with the same breadth and range of industry research that IBISWorld produces. This suggests that while there may be other companies in the industry, IBISWorld stands out due to the comprehensive nature of its research. The second statement mentions that clients say First Research meets certain needs but is designed for sales teams, while IBISWorld is more tailored to private equity group (PEG) needs. This suggests that First Research may be a competitor in some aspects, but IBISWorld has an advantage when it comes to serving PEGs.

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Quiz Review Timeline (Updated): Mar 22, 2023 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jul 14, 2016
    Quiz Created by
    Damian Mills
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