International Finance

II Midterm
Prof. Gimede Gigante
20156
Mock Exam

Exam rules
1. Every answer is equally weighted.
2. Please be precise in presenting calculations made.
3. Write clearly.
4. You are not allowed to use books, notes and handouts. You are only allowed to use a non
programmable calculator.
5. Cheating is absolutely forbidden. Exam of people caught in the act of cheating, whispering and/or
looking to someone else’s exam will be immediately withdrawn and the name of the student will
be signalled to the discipline committee of the University.

Question 1

m
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1. Taxonomy of PE Cluster: fill the following scheme about the 6 clusters about the firm’s life cycle and the possible interaction

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with a PEI (Private Equity Investor)

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Cluster rs e
1 2 3 4 5 6
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Company stage Expansion

Start up
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PE activity
financing
aC s
vi y re

2. Then describe in few words the firm’s need in each cluster/stage and the possible PEI’s activity.
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Question 2
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1. Focus on the Pricing/Allocation phase of an IPO.

a. What key issues are faced by underwriters?

b. Why does a Company decide to go Public?
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a.
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As discussed in class, choosing the right price involves a trade-off between leaving too much of the issuer’s money on the table and
covering the total order book. Another issue to take into account is that quality of demand matters- investors placing their orders on the
higher end of the price range are usually those that have performed an extensive due diligence on the company, such as “buy & hold”
investors (vs. other funds with more aggressive short-term arbitrage strategies) that guarantee a stable after-market during the launch;
bankers have to consider whether the price they are setting is too low or they may find themselves to face a high-volatile after-launch
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phase (and potential complaints of the issuer).

b.
You have to refer to the reasons that we have listed in class related to Financial, Strategic and Governance issues.

Question 3
Focus on the execution process of a right issue. An Italian leading insurer wants to raise €450 mil. of new capital in a right
issue. The company has 120 mil. of shares outstanding that are currently trading at €6.5:

1. Calculate TERP (Theoretical Ex-Rights Price) if the subscription price is set equal to €5

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 2. Compute the value of the right
3. Compare the wealth of a shareholder that owns 100 shares, in the case he exercises the rights and in the
alternative case in which he sells the rights. Which option brings him the highest increase in total net worth?

1.
n: Number of old shares= 120mil
N=number of new shares= 450.000.000$/5$=90mil
P: current market price=6,5$
S=subscrption price= 5$

TERP= (120x6,5$+90x5$)/120+90= 5,857142857

2.

Value of 1 right= P-Terp=6,5$-5,85$= 0,64$

3.

WEALTH Initial # shs Proceeds/(Costs

m
DATA CALC NW bought ) Value Tot NW

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120.000.00 € €
# old shs 0 TERP € 5,86 Exercising R 650,00 75,00 (€ 375,00) 1.025,00 € 650,00

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Price P € €

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(mkt) € 6,50 (Right) 0,643 Selling R 650,00 0,00 € 64,29 € 585,71 € 650,00

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# new rs e
shs 90.000.000
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Price (tgt) € 5,00
Ratio
old/new 0,750
Owned
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To change shs/Rights 100

aC s
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Question 4

Consider the following example.

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A private equity fund has a committed capital of 200 million euros, all contributed by the investors at t0. The
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fund regulation includes a carried interest of 25%.

The fund proceeds with divestitures according to the following timetable:

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t1: 120 mil. euros

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t2: 180 mil. euros

t3: 50 mil. euros

Considering the above mentioned data and clearly presenting the calculations,
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1. show the total amount of funds paid out to investors under the following two hypotheses:

a. simple carried interest (no hurdle rate)

b. carried interest with catch up clause and hurdle rate (of 5%)

Herebelow you can find the solutions:

Please during the exam write a similar table in order to answer correctly:

Caso T1 T2 T3

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 Carried interest (simple) 0 0 350 – 200 = 150
extraprofit x 25% =
37.5 carried interest

Carried interest with 120 mil to investors 80 mil to investors for
hurdle rate reimbursement of the
committed capital
(80+120=200)
Total to investors:
350-37.5= 312.5
50 mil splitted between
carried interest ( 12.5)
and investors (37.5)

10 mil as hurdle rate to

investors (5% of 200
milions)

100 mil splitted between

carried interest
(25%=25) and investors
(75% = 75)

m
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co
eH w
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rs e
ou urc
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aC s
vi y re
ed d
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is
Th
sh

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