Jennifer Martin, CFA, is the owner of Martin Investment Management Inc, a boutique company that specializes in managing money for high-net-worth individuals. The firm specializes in real estate and private equity investments, Martin has three client meetings today.

The first meeting is with Larry Smith, Smith is interested in investing in real estate but is not sure what type of real estate would be most appropriate for him, Smith is an executive with a major management consulting firm. He has a high income, so his main goal is to use real estate investments as a tax shelter.

Martin uses the internal rate of return (IRR) method to evaluate real estate investments. She is aware of problems with this method, and makes the following statement to Smith:

'Using the IRR method can be problematic. For example if project cash flows change from positive to negative, you can end up with more than one IRR. You can also end up ranking projects incorrectly using the IRR method if they are substantially different in size."

Martin’s second meeting is with Andre Metcalfe, Metcalfe is interested in investing in apartment buildings, Martin tells Metcalfe about three apartment buildings that may be suitable, The details are shown in Exhibit l.

Metcalfe also tells Martin that he is a very conservative investor and, if he invests in real estate his main goal is to invest in a property that is likely to appreciate in value.

Martin's third meeting is with James Wolfe, who is interested in investing in venture capital or private equity funds. He is financially very comfortable and is therefore willing to take on risk. Martin has recently received some information about a new venture capital deal involving a software company that may be of interest to Wolfe as he used to be an executive in the software industry. Information about the soft ware company for the venture capital deal is provided in Exhibit 2.Wolfe is also interested in investing in private equity funds, but is not familiar with how their management compensation systems work. He wants to make sure that management stays motivated and is focused on maximizing profits. Martin tells Wolfe that most private equity funds have a mechanism in place that enables the management team to increase its equity allocation depending on the company's actual performance and the return achieved by the private equity firm.