Chapter 11 - Capital Structure

Question 1

Pari Passu

Answer 1

Latin for “on equal footing”

Question 2

Carried Interest

Answer 2

Profit generated by funds under management for the General Partners (“Venture Capitalist”)

Question 3

Valuation of IPO

2 Ways

Answer 3

• Estimating the Present Value of future cash flows

- Estimating the value of comparable companies

Question 4

Road Show

Answer 4

Underwriters and Senior Management market the offering to the largest clients (mutual funds, pension funds, etc)

Question 5

4 IPO Puzzles

Answer 5

1. ) Average IPO seems to be priced too low
2. ) New issues appear cyclical
3. ) The transaction costs of an IPO are high
4. ) Long-Run performance after an IPO is poor on average