There are two LBO funds set up for ten years with $1 billion committed capital each. Fund A has the following characteristics: A constant management fee of 2% and carried interest of 80-20. Fund B is as follows: Preferred return of 8% per year. A decreasing management fee (2% in the first 4 years, 1% for the rest) and carried interest of 70-30. (c) (d) What is the investment capital of fund A and B, respectively? [2p] Suppose all investment capitals are invested at t=0 and both funds have the same internal rate of return (per year) of 15% on investment capital. The LP maximizes payoff in year 10. Which fund is better for the LP and how much more can the LP get by choosing the better fund? [6] What is the total payoff (including all fees) for the GP of fund A and B, respectively? [4pl (e) There are two LBO funds set up for ten years with $1 billion committed capital each. Fund A has the following characteristics: A constant management fee of 2% and carried interest of 80-20. Fund B is as follows: Preferred return of 8% per year. A decreasing management fee (2% in the first 4 years, 1% for the rest) and carried interest of 70-30. (c) (d) What is the investment capital of fund A and B, respectively? [2p] Suppose all investment capitals are invested at t=0 and both funds have the same internal rate of return (per year) of 15% on investment capital. The LP maximizes payoff in year 10. Which fund is better for the LP and how much more can the LP get by choosing the better fund? [6] What is the total payoff (including all fees) for the GP of fund A and B, respectively? [4pl (e)