K236-ind-ny - Private Equity Applications
Please complete the following self assessment quiz. Test your own knowledge but if necessary please refer back to the training materials, manuals, and/or relevant resources to complete the questions.
- 1.
Investment banking is typically an advisory/capital raising service, while private equity is an investment business. True or False?
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Investment banking is indeed a service that primarily focuses on providing advice and assistance for capital raising activities, such as issuing stocks and bonds, mergers and acquisitions, and financial restructuring. On the other hand, private equity refers to the business of investing in privately-held companies or acquiring a significant stake in them. Therefore, the statement is true as it correctly distinguishes the nature of these two financial activities.Rate this question:
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- 2.
Which of the following are among the most common investment strategies in private equity? Select the three that best apply.
- A.
Leveraged buyouts
- B.
Audit & assurance
- C.
Venture capital
- D.
Distressed investmets
- E.
Corporate banking
Correct Answer(s)
A. Leveraged buyouts
C. Venture capital
D. Distressed investmetsExplanation
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 debt, with the goal of improving its financial performance and selling it at a profit. Venture capital involves providing funding to early-stage or high-growth companies in exchange for equity ownership. Distressed investments involve investing in companies that are in financial distress, with the aim of turning them around and generating a return. These three strategies are commonly used by private equity firms to generate returns for their investors.Rate this question:
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- 3.
Select the most appropriate description for 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 the 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.
- A.
Growth capital
- B.
Venture capital
- C.
Investment banking
- D.
Leveraged buyout
Correct Answer
D. Leveraged buyoutExplanation
A leveraged buyout is the most appropriate description for the strategy described. In a leveraged buyout, a company acquires a controlling interest in another company using mostly debt to finance the purchase. The acquiring company puts up a small amount of equity and a large amount of debt, with the assets of the acquired company used as collateral for the debt. If the deal is successful, the debt used for the transaction will be paid off using the cash flow or assets of the acquired company.Rate this question:
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- 4.
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?
- A.
Helps them make well-informed procurement decisions.
- B.
Introduces them to industry jargon.
- C.
Helps them to "stress-test" their portfolio.
- D.
Allows them to get the complete picture of a firm’s business environment.
Correct Answer
D. 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 is most useful to private equity clients because it allows them to get the complete picture of a firm's business environment. By having access to comprehensive information about the industry, including supply chain dynamics, market trends, and competitive landscape, private equity clients can make more informed investment decisions and understand the potential risks and opportunities associated with a particular firm. This knowledge helps them evaluate the overall business environment and assess the potential success of their investment portfolio.Rate this question:
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- 5.
Which of the following are questions that help BDMs understand the needs of private equity prospects? Select the three that best apply.
- A.
Do you have any uncommitted funds at the moment?
- B.
How do your Credit Analysts assess whether the loan applicant’s evidence is credible?
- C.
What marketing tools are you currently using?
- D.
How do you monitor your portfolio of investments?
- E.
How many prospects do you research to identify attractive business opportunities?
Correct Answer(s)
A. Do you have any uncommitted funds at the moment?
D. How do you monitor your portfolio of investments?
E. 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?", and "How many prospects do you research to identify attractive business opportunities?" These questions are relevant to understanding the needs of private equity prospects because they provide insights into their financial situation, investment strategies, and approach to identifying potential business opportunities.Rate this question:
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- 6.
Which of the following is the least likely objection to be raised by a private equity prospect?
- A.
We do all our industry research in-house
- B.
Your reports are not niche enough for the industries we target
- C.
The industry reports do not have the level of detail that we require
- D.
We never have any use for industry information
Correct Answer
D. We never have any use for industry informationExplanation
The correct answer is "We never have any use for industry information." This is the least likely objection to be raised by a private equity prospect because industry information is crucial for making informed investment decisions. Private equity firms heavily rely on industry research and analysis to identify potential investment opportunities, assess market trends, and evaluate the performance of target companies. Therefore, it is highly unlikely for a private equity prospect to dismiss the importance of industry information entirely.Rate this question:
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- 7.
On average, a private equity group looks at around 100 opportunities to make one deal. True or False?
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Private equity groups typically evaluate numerous opportunities before deciding on a single deal. This is because they have specific investment criteria and rigorous due diligence processes to ensure that they select the most lucrative and viable investment opportunities. By carefully examining around 100 opportunities, they can identify the one that aligns with their investment strategy and has the potential for high returns. Therefore, the statement "On average, a private equity group looks at around 100 opportunities to make one deal" is true.Rate this question:
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- 8.
Which of the following best describes mezzanine investment?
- 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.
- B.
Refers to investments in the equity or debt of temporarily financially stressed firms (that are sound over the medium-term).
- C.
Refers to raising acquisition debt against the future cashflow of the company, which is then used to make interest and principal payments.
- D.
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 in financing transactions where traditional debt financing may not be sufficient, providing the lender with the potential for higher returns if the company performs well.Rate this question:
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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 or False?
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
False. The statement suggests that when economic conditions are good, private equity groups are more likely to venture outside their niche, providing an opportunity to sell. However, the correct answer is False because it is not necessarily true that private equity groups will venture outside their niche when economic conditions are good. The decision to venture outside their niche depends on various factors such as market conditions, investment strategies, and risk appetite.Rate this question:
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- 10.
How do private equity firms generally receive a return on their investment? Select the three that best apply.
- A.
An IPO, when the firm is offered for sale to the public
- B.
Merger or acquisition, when a company is sold for cash or shares in another company
- C.
Transfer pricing, the setting of the price for goods and services sold between controlled legal entities within an enterprise
- D.
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
B. Merger or acquisition, when a company is sold for cash or shares in another company
D. Recapitalization, when cash or debt is raised against future cash flowExplanation
Private equity firms generally receive a return on their investment through an IPO, when the firm is offered for sale to the public, as well as through a merger or acquisition, when a company is sold for cash or shares in another company. Additionally, they can receive a return through recapitalization, which involves raising cash or debt against future cash flow. These three methods are commonly used by private equity firms to generate returns on their investments.Rate this question:
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- 11.
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?
- A.
Applicants will try to portray themselves in the best light possible, and IBISWorld reports help HCC make a more informed decision
- B.
IBISWorld Industry data, in conjunction with client metrics, helps HCC to price loans
- C.
IBISWorld provides a credible and unbiased source to help uncover threats and opportunities
Correct Answer
B. IBISWorld Industry data, in conjunction with client metrics, helps HCC to price loansExplanation
IBISWorld Industry data, in conjunction with client metrics, helps HCC to price loans. This means that IBISWorld provides information that allows Harvest Capital Credit to determine the appropriate interest rates and terms for loans based on industry trends and the client's specific financial metrics. By analyzing this data, HCC can make more accurate and informed decisions regarding loan pricing.Rate this question:
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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? Select the two that best apply.
- A.
IBISWorld doesn't have a direct competitor - there are similar companies but none with the breadth and range of Industry research we produce.
- B.
There are no other companies producing Industry research.
- C.
Clients say First Research meets certain needs, but is designed for sales teams. IBISWorld is more tailored to PEG needs.
- D.
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.
C. 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 IBISWorld's main competitors. The first statement states that IBISWorld doesn't have a direct competitor as there are similar companies, but none with the same breadth and range of industry research that IBISWorld produces. This implies that while there are other companies in the same industry, they do not offer the same comprehensive research as IBISWorld. 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 can be considered a competitor in terms of meeting certain needs, but it is not as suitable for PEGs as IBISWorld.Rate this question:
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.png "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?")
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Current Version
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Mar 20, 2023Quiz Edited by
ProProfs Editorial Team -
May 19, 2016Quiz Created by
Damian Mills
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