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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:

Definitions:

Dividend Growth Rate

The annualized percentage rate of growth of a company's dividend payments.

Efficient Markets Hypothesis

The theory that all available information is already reflected in stock prices, implying it is impossible to consistently achieve higher returns.

Weak-Form Efficient

A theory stating that all past prices of a stock are reflected in its current price and that technical analysis cannot consistently outperform the market.

Above-Normal Rate Of Return

Earnings that exceed what is typically expected or required, often reflecting superior performance or risk.