Exercise5 - Tri Vi Dang Corporate Finance Columbia...

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1 Tri Vi Dang Columbia University Corporate Finance Spring 2014 Exercise Set 5 Due Thursday, 4/17 This problem set consists of four questions. Please give a brief answer to each of the questions. You can obtain a maximum of 42 points. Question 1 [12 points] (a) Merger and acquisition is a lucrative business for investment banks. Empirically, who else typically benefits from a merger? [2p](b) Under what circumstances is a merger welfare improving? [2p](c) Under what circumstances is a merger welfare reducing? [2p](d) How can you provide an empirical test whether the stock market (on average) perceives that a merger is in the interest of the shareholder of the acquiring firm? Please describe briefly the key steps of your method. [6p]Question 2 [12 points] (a) What is a limited partnership agreement (LPA)? [2p](b) There is a compensation rule in the LPA called carried interests or 80-20 rule. Please explain this rule. What is the purpose of the rule? [3p]

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