Question

34. All of the following strategies are ways that a venture capitalist can typically add value except:

A. refinancing by using the firm’s assets to secure debt financing

B. contacts with established operating firms

C. reviews business plan and offers suggestions and alternatives

D. ability to ask other venture capitalists to invest

35. Which of the following statements regarding leveraged buyouts (LBOs) is false?

A. LBOs provide the lowest average return among the four private equity types.

B. LBOs have a more realistic exit strategy than a venture capital deal

C. Existing common stock is eliminated during the transaction

D. Institutional investors often dedicate a portion of their portfolios to LBOs.

36. A reduction in the due diligence process of evaluating a firm’s financial statements and operations disadvantage most likely to result from:

A. the development of an auction market for private equity

B. the growth of club deals in the LBO market

C. secondary buyouts

D. increased use of Business Development Companies (BDCs)

Answer 1

34. (B)

Reason: Contacts with established operating firms will not add value by the venture capitalist. Other option are will add value as refinancing using firm’s asset to secure debt financing, review of business plan, suggestions, alternatives and ability to ask other venture capitalist to invest will definitely add value by the venture capitalist.

35. (A)

Reason: Leveraged buyout often refers as taking higher risk to obtain higher return. And thus LBO provides higher return than other private equity types. Other are true statement as LBO’s have a more realistic exit strategy, common stock is eliminated and institutional investor also often invest in LBO. And thus only option A is false statment

36. (D)

Reason: The most disadvantage due to reduction in due diligence of evaluating a firm’s financial statements and operations will result from increased use of Business Development Companies. As these companies often carried out Due Diligence frequently for purpose of investing and development.