Acronyms

Question 1

10 Elements of a Business Plan Acronym

EBCCCMKFCS

Answer 1

1) Executive Summary
2) Business Purpose
3) Company’s Customers
4) Competitive Environment
5) Company Suppliers
6) Marketing Plan
7) Key Staff
8) Financial Forecasts
9) Company Valuation
10) Sources and Uses Table

Question 2

7 Elements of a Financing Proposal (DAMBBFF)

Answer 2

1) Description of Business
2) Analysis of Industry Environment
3) Managerial Resumes
4) Business Plan
5) Business Asset Description
6) Financial / Corp Dev / Product Documents
7) Forward Budgets

Question 3

7 Investment Returns (DIPPNHR)

Answer 3

1) Discounted Payback
2) Internal Rate of Return
3) Payback Period
4) Profitability Index
5) Net Present Value
6) Holding Period Return
7) Return on Capital Employed Ratio

Question 4

Tax Considerations Acronym (4) (FCTT)

Answer 4

1) Flow through Shares
2) Corporations with Large Tax Pools
3) Tax Deductibility of Interest
4) Tax to Investors on Dividends vs. Interest Income

Question 5

What are the Disadvantages of Debt? (BRRFLP)

Answer 5

1) Bankruptcy Risk increase potential
2) Reporting Requirements
3) Rigid payment requirements
4) Funds restricted by Covenants
5) Less alignment of interests compared to Equity
6) Penalties on Covenant Breaches

Question 6

What are the Advantages of Debt? (CONTLL)

Answer 6

1) Corporate Governance no effected/impacted
2) Optimize WACC
3) Non-Dillutive
4) Tax Deductibility of Interest
5) Less Costly
6) Lower Cost of Capital

Question 7

What are the 6 Basic Rights and Features of Debt (PICFDS)

Answer 7

1) Principal Repayment
2) Interest Payment
3) Call the Loan
4) Financial Reporting
5) Default Remedies
6) Seize Assets

Question 8

Companies Issuing Convertibles tend to be Characterized by: (HHSS)

Answer 8

1) High Market Earnings
2) High Business & Financial Risk
3) Stronger Growth Expectations
4) Shorter Corporate History

Question 9

What are the 4 Benefits of Convertible Debt? (LARF)

Answer 9

1) Lower Interest Rates
2) Ability to Obtain Debt Financing
3) Raise equity-like financing without giving up voting rights
4) Flexible Financing with no Stringent Covenants

Question 10

What are the 7 Common Financing Instruments? (FFLVTOM)

Answer 10

1) Factoring
2) Floor-Plan Financing
3) Leasing
4) VTB
5) Term Loans
6) Operating Line of Credit
7) Mezzanine Debt

Question 11

What are the 3 Features of Mezzanine Debt? (PPE)

Answer 11

1) Principal Deferment
2) Paid-in-kind Interest
3) Equity Participation

Question 12

What are the 9 Keys to selecting a Lender? (RISCFACTS)

Answer 12

1) Relationship with Bank
2) Industries Covered
3) Size of the Loan
4) Competition between lenders
5) Flexibility (covenants)
6) Administrative Capacity
7) Cost of Financing
8) Time to Secure Financing
9) Specialization

Question 13

What are the 6 Steps to Solicit Funding? (NTNLCL)

Answer 13

1) NDA Execution
2) Term Sheet Discussion
3) Negotiation of Terms
4) Lender Due Diligence
5) Commitment Letter
6) Loan Agreement

Question 14

What are the 6 Core Elements of a Term Sheet? (DLCPCF)

Answer 14

1) Debt amount willing to extend
2) Lender Experience
3) Covenants
4) Pricing and Amortization
5) Collateral/Security
6) Fees

Question 15

4 Types of Fees for Financing on Debt (CDSW)

Answer 15

1) Commitment Fee
2) Drawdown Fee
3) Standby Fee
4) Work-Fee

Question 16

Events of Default (5) - We dont need an acronym for this one, and we can probably come up with these. Think about this from the perspective of the Lender

Answer 16

1) Failure to Pay
2) Breach of Covenants
3) Misrepresentation on Rep / Warranties
4) Loss of Collateral without paydown / ins. proceeds
5) Appointment of Receiver or Trustee

Question 17

3 Types of Covenants

Answer 17

1) Negative - Cant do
2) Positive - Must do
3) Financial - Ratios that must be met

Question 18

3 Fundamental drawbacks of Covenants

Answer 18

1) Fundamental Credit Health not Addressed
2) Cannot improve borrower position facing business adversity or competitive pressure
3) Enforcement is usually vague

Question 19

5 Disadvantages of Equity (DIEDD) / 5 Advantages of Debt

Answer 19

1) Dilutive Ownership/control
2) Investors want a say
3) Expensive Capital
4) Dividends not tax deductible
5) Difficult / more costly to Raise

Question 20

5 Advantages of Equity (NLLFS) / 5 Disadvantages of Debt

Answer 20

1) No Set Repayment
2) Longer Term Patient Capital
3) Less restrictive than debt
4) Flexible / provides growth capacity
5) Strengthens Balance sheet

Question 21

Types of Equity Investors

Answer 21

1) Angel Investors
2) Venture Capital Investors
3) Private Equity Investors
4) Public Equity Investors
5) Public Eq. Investment in Public Enterprise
6) Distressed Investors

Question 22

4 Rights of Dividends

Answer 22

1) No Rights to Dividends
2) Right to Dividends on Pari-Pasu Basis
3) Right to Dividends on Non-Cumulative Basis
4) Right to Dividends on a Cumulative Basis

Question 23

3 Types of Arrangements for an IPO

Answer 23

1) All or None - If you dont sell them all you are fucked
2) Best Efforts - Try to sell as many as possible
3) Firm Commitment - Bought Deal - underwriting investment Bank buys shares at discount and then try to place them at higher price to make money on issuance

Question 24

3 Major Distressed Investment Strategies

Answer 24

1) Turn-Around Equity Financing
2) Loan-to-own
3) Distressed to Control

Question 25

3 Rights and Responsibilities that Financers are Concerned with (DLC)

Answer 25

1) Duration of Earn-in Phase
2) Circumstances in which they can abandon
3) Level of Fiduciary Duty

Question 26

3 Advantages of JV Financing

Answer 26

1) Cash Flows
2) Maintain Independence
3) Strategic Benefits (Credibility, Tangible Resources, Industry Expertise)

Question 27

4 Disadvantages of JV Financing

Answer 27

1) Limited to specific Industries / Capital Intensive
2) Must give-up more control than debt / relinquish Management
3) More complex to Negotiate and Manage
4) Less Attractive Tax Structure

Question 28

3 Ways a Company can Exit JV Financing Agreement

Answer 28

1) Sell interest to JV Partners
2) Sell interest to an outside party
3) Trigger a Termination Clause

Question 29

5 Characteristics for Project Financing to be used

Answer 29

1) Capital Intensive Projects
2) Highly Leveraged
3) Long-Term Project
4) Entity Specific Cashflows
5) Multiple Participants

Question 30

4 Points of Appeal for Equity Financing

Answer 30

1) Maximize Equity Returns
2) Move significant Liabilities off the Balance Sheet
3) Protect Key Assets
4) Monetize Tax Financing Opportunities

Question 31

Describe 3 Types of Covenants in order of the flow of funds

Answer 31

1) Payment of Project Specific Costs
2) Scheduled Interest & Principal
3) Distribution of Profits to Project Sponsors

Question 32

What are the 8 Advantages of Project Financing?

Answer 32

1) Protect sponsor Balance Sheet
2) Investors have decision making power
3) Strong discipline to contracting process and operations
4) Scrutiny on Capital Investment Decision-making
5) Credit Application process limits risk via credit rating agencies
6) Raise Long-term equity and debt capital
7) Protection of key sponsor Assets
8) Tax Structuring Opportunities

Question 33

What are the 6 Disadvantages to Project Financing?

Answer 33

1) Cashflow Requirements are high
2) Contractual Agreements with large oversight
3) Complex Mechanisms & Lead Times
4) High Transaction Costs
5) Immobile Asset Risks
6) Operating Restrictions on project

Question 34

What are the 5 Types of Revenues that Royalty Financing is suitable for?

Answer 34

1) Industries without Hard Assets
2) Elasticity in Pricing
3) Convenient Payback Terms & Less Penalties
4) Institutional Investors Prefer (serves as bridge to get to next financing round)
5) Prevents lower valuation and provides funding

Question 35

List 3 Characteristics of Companies that are Suitable for Royalty Financing

Answer 35

1) Profitable Companies
2) High Margin Companies
3) Forecasting Growth

Question 36

What are 4 Fundamental Items of a Royalty Financing Agreement? (ATTC)

Answer 36

1) Amount of Investment / Multiple to be returned
2) Timeframe for returning original principle (18-48 mo.)
3) Timeframe for providing remaining investment return (4-6 Years)
4) Contractual Time to provide total Investment Return (8+ years)

Question 37

What are the 6 Legal Terms in Revenue Based Financing Agreements? (FREDRM)

Answer 37

1) Financing Amount
2) Repayment Terms
3) Maturity Date
4) Events of Default
5) Default Remedies
6) Reps and Warranties

Question 38

What are the Advantages of Royalty Financing?

Answer 38

1) Non-Dilutive
2) Does not affect Debt Structure
3) Aligns priorities of investors
4) Faster than Debt/Equity Financing
5) A Portion of Capital comes unrestricted
6) More Flexible than debt in terms of default (less or no covenants)

Question 39

What are the 8 Disadvantages of Royalty Financing?

Answer 39

1) Expensive
2) Reduces margins / Profitability
3) Financer enjoys revenue upside but not downside risk
4) Investors not committed to future growth (no future funds committed)
5) Detract from Ability to Service Debt
6) Royalties Based on Revenues, Investees make payments even if not profitable
7) Financing better suited for High-Gross Margins
8) No Private Equity / Venture Capital value (do not specialize in improving business)