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Assignment _VCPE

The document outlines an assignment focused on financial calculations including Net Present Value (NPV), gross and net returns, Internal Rate of Return (IRR), and Return on Investment (ROI). It presents various scenarios involving cash flows, investment amounts, and fees to be calculated for different projects and investment strategies. Each section requires specific calculations to determine the viability and profitability of the investments discussed.

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Aryamnn Sablok
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3 views3 pages

Assignment _VCPE

The document outlines an assignment focused on financial calculations including Net Present Value (NPV), gross and net returns, Internal Rate of Return (IRR), and Return on Investment (ROI). It presents various scenarios involving cash flows, investment amounts, and fees to be calculated for different projects and investment strategies. Each section requires specific calculations to determine the viability and profitability of the investments discussed.

Uploaded by

Aryamnn Sablok
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment- Self Paced

Section A: Net Present Value (NPV)

1. Single Project NPV: A private equity fund is considering a project


with the following cash flows:

o Initial Investment: $800,000

o Year 1: $200,000

o Year 2: $300,000

o Year 3: $400,000

o Year 4: $500,000

If the discount rate is 12%, calculate the Net Present Value (NPV). Should
the project be undertaken?

2. Comparing Investments:
Two projects are under consideration with the following cash flows:

Project A:

o Initial Investment: $600,000

o Year 1: $200,000

o Year 2: $200,000

o Year 3: $200,000

o Year 4: $200,000

Project B:

o Initial Investment: $600,000

o Year 1: $100,000

o Year 2: $300,000

o Year 3: $300,000

o Year 4: $100,000

If the discount rate is 10%, calculate the NPV for both projects and
recommend which project to choose.

Section B: Gross and Net Returns


3. Gross Return Calculation:
A private equity firm invests $3,000,000 in a business. After four
years, the investment grows to $5,000,000, and dividends of
$200,000 are received during the period.

o Calculate the gross return percentage for this investment.

o If the gross return is annualized over four years, what is the


annualized return?

4. Net Return with Fees:


A venture capital fund generates a gross return of 50% on an
investment of $2,000,000. The fund charges:

o Management Fee: 2% annually of the initial investment for 4


years.

o Performance Fee: 20% of profits above a hurdle rate of


10% per year (compounded).

Calculate:

o (a) Total management fees paid.

o (b) Performance fee based on the hurdle rate.

o (c) Net return percentage after fees.

Section C: IRR and ROI

5. Internal Rate of Return (IRR):


An investor invests $1,000,000 in a startup. The startup returns the
following cash flows:

o Year 1: $200,000

o Year 2: $300,000

o Year 3: $400,000

o Year 4: $600,000

Calculate the IRR for this investment.

6. Return on Investment (ROI):


A venture capitalist invests $1,500,000 in a company, and after
five years, the total exit proceeds amount to $3,750,000.

o Calculate the total ROI percentage.


o If the ROI is annualized, what is the compound annual growth
rate (CAGR)?

Section D: Advanced Scenarios

7. Combination of Returns and Fees:


A private equity fund invests $5,000,000 in a company. After six
years, the fund earns gross returns of 80%. The fund charges:

o Management Fee: 2.5% annually of the initial investment.

o Performance Fee: 25% of profits above a hurdle rate of


10% annually.

Calculate:

o (a) Gross Return (Percentage and Dollars).

o (b) Total management fees over six years.

o (c) Performance fees.

o (d) Net Return (Percentage and Dollars).

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