REFM FINAL Question and answers rated A+ 2024/2025
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REFM
REFM FINAL Question and answers rated A+ 2024/2025 REFM FINAL
Equity returns are always split at a set percentage regardless of the performance of the investment. - correct answer False
Waterfall structures put explicit mechanisms in place to alter the percentages of profit splits on a sli...
REFM FINAL
Equity returns are always split at a set percentage regardless of the
performance of the investment. - correct answer ✔False
Waterfall structures put explicit mechanisms in place to alter the percentages
of profit splits on a sliding scale based on the investment's performance.
Using a traditional Internal Rate of Return hurdle-based waterfall, the share of
profits ____ for the Sponsor at successively higher IRR thresholds. - correct
answer ✔increase
The increasing of share of profits at successively higher tiers is the de facto
financial incentive to the sponsor.
If the Investor's IRR ends up being 17%, what is the Total Sponsor Profit
Share for the dollars unique to the tier of highest performance? - correct
answer ✔25%
Given the Investor's IRR reaches Tier 3 (whose IRR range is 15%-20%), the
Sponsor's total profit share for the dollars unique to the tier of highest
performance (Tier 3) is 25%.
If the highest level of Sponsor Promote paid in the profit sharing is greater
than 15%, and the hurdles are based on the Investor's IRR, which could be
the Investor's IRR? - correct answer ✔21%
Given the Tier 3 sponsor promote is 15%, and the sponsor's highest level of
promote exceeds 15%, the investor's IRR must be in Tier 4 or 5, so their IRR
must be above 20%.
, $1,000 is invested in a transaction at Time 0, and there are no cash flows,
either positive or negative through Year 4. The Year 5 Operating Cash Flow is
$1,000. What is the transaction's IRR as of the end of Year 5? - correct
answer ✔0%
Breakeven net cash flow (i.e., a net cash flow of $0) is a 0% IRR by definition.
Distributions to equity will be made in periods of deficits. - correct answer
✔False
A deficit requires investment from equity, thus there are no distributions in the
same period.
If there are three equity players, and the local developer Sponsor gets
promoted twice, assuming at least one of the promote hurdles is achieved in
each waterfall, the developer Sponsor's IRR will be the _______ of the three
parties. - correct answer ✔highest
Both partner and investor are forfeiting profit dollars that would otherwise
rightfully be theirs on a pro-rata basis, to the sponsor, who does not have to
buy more ownership in the transaction to receive those profit dollars.
How does an equity joint venture waterfall align the interests of the Sponsor
and the Third Party Investor, typically? - correct answer ✔It incentivizes the
Sponsor to achieve the highest returns for the Investor by rewarding the
Sponsor with returns higher than their pro-rata share if the transaction
reaches certain performance thresholds
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