Finance

Question 1

What is a SPV?

Answer 1

Special Purpose Vehicle

This is a security that is set aside from the ‘touchable’ assets in the bankruptcy process.

Debt is secured on the CASH FLOW from the SPV but not the underlying assets

• Subsidiary isolating financial risk from parent company.
• Uses: Asset securitization, off-balance sheet financing, project-specific financing, joint ventures, targeted venture capital.

Question 2

Plaza Accord

Answer 2

An agreement between 5 major gov’ts to depreciate the US dollar (versus the yen) and boost US exports

Signed in 1985 and depreciated the USD:Yen by 51% to 1987

Partially contributed to the Japanese asset bubble in the 1980’s

Question 3

Enterprise Value Calculation

Answer 3

Market Cap + Debt - Cash and Eq’s

Question 4

What is the Glass Steagall Act?

Answer 4

Glass-Steagall Act (1933)

• Introduced to restore confidence in the US banking system
• Separated commercial & investment banking.
• Created the FDIC for deposit insurance.
• Indirectly limited banks from venture capital by barring securities activities.

Question 5

What is Alpha?

Answer 5

Excess returns relative to a specific market index

LPs seek to generate excess returns of 500-800 bps relative to the index.

If S&P is 7%, VC needs to generate 12-15%

Question 6

What is the Sarbanes-Oxley Act (2002)

Answer 6

Response to financial scandals (e.g., Enron).

• Mandates: Accurate financial disclosures, auditor independence, executive accountability.
• Provides: Whistleblower protection.
• Implements: Increased penalties for financial fraud.
• Purpose: Protect investors, restore trust in markets.

Question 7

What is an Equity recap (distressed real estate)

Answer 7

If the property is 100% LTV (original equity is gone), an investor comes in a/ fresh equity at the current market valuation to help resize the loan and allows the owner to share in the profits above a certain IRR threshold (e.g original owner gets 20% of profits above an 18% IRR)