Entrepreneurial Finance Assignment 1

2519 WordsMay 29, 201311 Pages
Entrepreneurial finance assignment 1 Problem 4.4. Introduction The CAPM model can be used to analyze the performance of a portfolio of investments. The model should be calculated by comparing the return of assets (Ri) minus the return of risk-free cash (Rf) of the fund against those numbers of a known index with historical data (Rm). With least-squares regression, a straight line has to be drawn through the points to finish the model. Alpha represents the point where the graph starts and beta the slope of the regression line. Alpha is the number that represents the fact of how well the fund did against the CAPM model. A positive alpha means the fund did better than CAPM predicted and negative the opposite. R² represents the ‘fit’ of the…show more content…
The LP cost of each fund can be seen in Table 1. Tables of every annually management fee is included to appendix 1. |Fund |committed capital |invests |lifetime fees |investment capital |LP cost | |UVW |100 |5 |15,01 |84,99 |5,88 | Table 1 calculation for LP cost (all in Millions) ABC Fund The lifetime fee of fund ABC is 10 times the annually management fee (2.5%) of the committed capital (100M) = 25M. This results in an investment capital of 75M and a LP cost of 6,6667M DEF Fund The lifetime fee of fund DEF is for the first 5 years 2.5% and after that year the management fee is decreasing by 0.25%, to a total after 10 years of 21.25M, investment capital of 78.35M and a LP cost of 6.35M. UVW Fund The management fee of the first 5 years is 2 % per year based on the committed capital. After 5 years the sum of the management fees is (0.02x100M x 5 years) 10M. the investment capital is 90M. Newco also suspects to have realized 25% of all investment capital, this is (0.25x 90M) 22.5M. The investment capital at the beginning of year 6 is (90M-22.5M) 67,5M. Every year 15% of the investment capital is realized, but still the 2% management fee maintained. The lifetime fee is 15.01M over 10 years. This implies an investment capital of 84.99M. The LP cost will be
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