Use the Following Information to Answer the Question(s) Below

question 48

Multiple Choice

Use the following information to answer the question(s) below.

Suppose that Galt Ventures, a venture capital firm, raised $250 million of committed capital. Each year over the 10-year life of the fund, 2% of this committed capital will be used to pay Galt's management fee. As is typical in the venture capital industry, Galt will only invest $200 million (committed capital less lifetime management fees) . At the end of 10 years, the investments made by the fund are worth $800 million. Galt also charges 20% carried interest on the profits of the fund (net of management fees) . Assume that Galt collects the $250 million of committed capital and invests $200 million of it immediately. Also assume that Galt collects all proceeds from its investments at the end of the ten-year life.

-The IRR on the investment of a limited partner into Galt Ventures net of all management fees and expenses is closest to:

• A)7.8%.
• B)9.9%.
• C)12.4%.
• D)14.9%.

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Definitions:

Financial

Relating to money or how money is managed.

Social

Relating to society or its organization, including interactions and relationships within.

United States Environment Protection Authority

A federal agency tasked with protecting human health and the environment by creating and enforcing regulations based on laws passed by Congress.

Prevention Costs

Expenditures incurred to prevent defects in products or services, including costs related to quality planning, training, and preventive maintenance.