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:

Memorandum of Agreement

A document outlining an agreement between parties before finalizing a more formal contract, detailing the preliminary terms and conditions.

Statute of Frauds

A legal concept that requires certain types of contracts to be executed in writing and signed by the party to be charged.

Typed Agreement

A formal contract that has been created and recorded in written form, usually typewritten, to outline specific terms and conditions between parties.

Writing Requirement

The legal principle that certain contracts or agreements must be recorded in written form to be legally enforceable.