--%>
Assignment Help - homework help

Relationship between the preferred stock the fund

Quetion:

A private equity fund invests $100 million into a portfolio company and receives 100% of the preferred stock and 80% of the common stock of the company.  The preferred stock carries a face value of $100 million with an 8% accrued dividend (PIK) and the common stock will be issued for 1 cent per share (its nominal value on date of investment). The $100 million was called by the GP (General Partner) of the fund from the fund's limited partners. For all funds called, the first distributions received by the fund goes to the limited partners (the partners from whom the funds were called), until they receive 100% of the called capital plus an 8% compounded preferred return. The fund invests in all of the portfolio companies in the form of participating redeemable preferred stock (preferred stock plus warrants for common stock at no additional cost) with an 8% coupon.   Is there a relationship between the preferred stock the fund owns of the company and the preferred return the fund distributes to the limited partners?  Explain.

 

 

   Related Questions in Corporate Finance

  • Q : Explain Value Chain Value Chain : The

    Value Chain: The value chain is a theory from business management that was first described and popularized Michel Porter in his 1985 best seller, Competitive Advantage: Creating and Sustaining Superior Performance.

  • Q : Effective annual yield problem Stanley

    Stanley invested in a municipal bond which promised an annual yield of 6.7 %. The bond pays coupons twice a year. What is the effective annual yield (abbreviated as EAY) on this investment? (1) 13.4%  (2) 6.81%  (3) 6.70%  (4) None of the above

  • Q : How form a portfolio with higher

    Does this make any sense to form a portfolio comprised of companies along with a higher return/dividend?

    		•
  • Q : What is real gross domestic product

    Real gross domestic product: If GDP of a particular year is estimated or evaluated on the basis of the base year prices it is termed as real gross domestic product.

    		•
  • Q : Real estate problem Eric Rowan is

    Eric Rowan is planning to buy a house for $155,000 by borrowing money at the rate of 9%. He expects to rent the house for 5 years, collecting $20,000 annual rent in advance each year. He thinks that he can sell the house for $175,000 after five years. Fulton has incom

    		•
  • Q : Long-Term Debt What are Long-Term Debt

    What are Long-Term Debt and what are their main parts.

    		•
  • Q : Who explained put–call parity Who

    Who explained put–call parity?

    		•
  • Q : Problem regarding purchasing machine

    Alger Corp needs to buy some construction equipment for $50,000 that has a helpful life of 4 years with no salvage value. The Alger utilizes straight-line depreciation. Alger contains a tax rate of 30%, and it employs a discount rate of 10%. The equipment will produce

    		•
  • Q : What is the expected risk premium on

    You have decided to invest 30 percent in X; 30 percent in Y; and 40 percent in Z. Theprobability of the state of the economy is Boom 25%; Normal 60%; and, Bust 15%. The rateof return for stock X is Boom .20; Normal .15; and, Bust .00. The rate of return for stock Y is

    		•
  • Q : Who wrote famous paper- distribution of

    Who wrote famous paper of on distribution of cotton price returns?

    		•