Question

QUESTION 1

1. Based on historical date, the expected rates of return to investing in venture capital funds are much higher than the rates of return from investing in the public stock market

   	A.	True
   	B.	False
   	C.	Uncertain

1 points   

QUESTION 2

1. An important factor in explaining the returns to investing in venture capital is timing. Funds started in some years do much better than funds started in other years.

   True

   False

1 points   

QUESTION 3

1. Since investors in VC seek very high rates of return, they are naturally disappointed when the return turns out to be only a percent or two above the return on the market.

   True

   False

1 points   

QUESTION 4

1. Because the kinds of ventures that are invested in by VC funds are typically very risky, the required return for investing in VC must be much higher than the required return for investing in the public stock market.

   True

   False

1 points   

QUESTION 5

1. An important difficulty of using the venture capital method to value a projct is:

   	A.	That there is no sound theoretical basis for determining the hurdle rate to us.
   	B.	There is no reliable and consistent way to adjust the discount rate to compensate for the bias introduced by using only a success scenario in the valuation.
   	C.	There is no explicit consideration of the probability that something like the success scenario will be achieved.
   	D.	All of the above.

1 points   

QUESTION 6

1. One benefit of the Certainty Equivalent Method of valuing projects is that you do not need to know the equilibrium standard deviation of holding period returns. However, you do need to know the standard deviation of future cash flows.

   True

   False

1 points   

QUESTION 7

1. If done correctly the First Chicago Method is just a simplified way of using the risk adjusted discount rate approach to do a DCF valuation

   True

   False

1 points   

QUESTION 8

1. If you are using the relative value approach to valuing a project, that means that you do not care about the expected future cash flows of the project.

   True

   False

Answer 1

Answers-

Q 1)

The statement is True.
The minimum average return for a Venture Capital fund is 20% per year. The ten-year venture capital fund on an avrage needs to repay investors six times (6x) their investment. The rerurna are higher than stock market returns.

Q 2)

The statement is True.

The Venture Capital (VC) funds do better in some years when the macro economic conditions are supporting whereas the VC funds started in times when there is recession or events like disasters and pandemic or epidemics are adversely effected with erosion of wealth.

Q 3)

The statement is True.
The Venture Capital (VC) funds in general invest in risky startups and other investments with high risk and therefore expects returns much higher than the stock markets and therefore a percent or 2 more than stock market returns is certainly disappointing.

Q 4)

The statement is True.

The required rate of return on Venture Capital (VC) funds are much higher than the returns in investment in stock markets as the risk involved in ventures generally startups and early stage companies is very high and thus the required return is much higher.

Note- Kindly put other questions in separate posts