Question XYZ is a biotech company. The founder believes they can sell the company for $40 million in five years. The founder currently holds 1 million shares. The company needs $2 million in the first round and $3 million in the second round three years later. The discount rate for the first round is 40% and 30% for the second round. What is the stock price the VC should pay in the first round? O 5.53 3.02 4.88
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- uestion 4 XYZ is a biotech company. The founder believes they can sell the company for $50 million in four years. They need $5 million in capital now, and the founder currently holds 1 million shares. The discount rate is 50%. What is the stock price the VC should pay for the investment? A. 3.02 B. 4.88 C. 5.53Start with the partial model in the file Ch07 P27 Build a Model.xlsx on the textbook’s Web site. Hamilton Landscaping’s dividend growth rate is expected to be 30% in the next year, drop to 15% from Year 1 to Year 2, and drop to a constant 5% for Year 2 and all subsequent years. Hamilton has just paid a dividend of $2.50, and its stock has a required return of 11%. What is Hamilton’s estimated stock price today? If you bought the stock at Year 0, what are your expected dividend yield and capital gains for the upcoming year? What are your expected dividend yield and capital gains for the second year (from Year 1 to Year 2)? Why aren’t these the same as for the first year?Suppose you are thinking of purchasing the SunStar’s common stock today. If you expect SunStar to pay $0.80 dividend at the end of year one and $1.6 dividend at the end of year two and you believe that you can sell the stock for $15 at that time. If you required return on this investment is 10%, how much will you be willing to pay for the stock? a. $13.95 b. $14.44 c. 14.19 d. $15.51
- 2. You are positive (or bullish) on a biotech stock. The current market price of this stock is US$50 per share and you have US$5,000 on hand for investment. You borrow another US$5,000 from the broker at an interest rate of 8% per year so that you have a total sum of US$10,000 to invest in the stock. a. What is your rate of return from this stock if the share price rises by 10% in the next year, assuming this stock pays zero dividend and the transaction cost is zero ? b. How far does the price of this biotech stock have to fall so that you will receive a margin call from your broker if the maintenance margin is 30% ? Assume the price fall happens immediately.K Melissa Cutt is thinking about buying some shares of EZLawn Equipment, at $46.30 per share. She expects the price of the stock to rise to $47.65 over the next 3 years. During that time she also expects to receive annual dividends of $6.79 per share. a. What is the intrinsic worth of this stock, given a required rate of return of 12%? b. What is its expected return? BCCCID a. The intrinsic worth of this stock is $ 50.22. (Round to the nearest cent.) b. The expected return is %. (Round to one decimal place.)3. You are considering the purchase of Jillex Company stock. You anticipate that the company will pay dividend of P2.25 per share next year and P2.50 per share the following year. You believe that you can sell the stock for P18.50 per share two years from now. If your required rate of return is 12.5%, what is the maximum price you would pay for a share?
- A group of investors is intent on purchasing a publicly traded company and wants to estimate the highest price they can reasonably justify paying. The target company's equity beta is 1.20 and its debt-to-firm value ratio, measured using market values, is 60 percent. The investors plan to improve the target's cash flows and sell it for 12 times free cash flow in year five. Projected free cash flows and selling price are as follows. ($ millions) Year 5 1 $38 Free cash flows 2 3 4 $53 $58 $63 $ 63 $ 756 Selling price Total free cash flows $38 $53 $58 $63 $819 To finance the purchase, the investors have negotiated a $530 million, five-year loan at 8 percent interest to be repaid in five equal payments at the end of each year, plus interest on the declining balance. This will be the only interest-bearing debt outstanding after the acquisition. Selected Additional Information Tax rate 40 percent Risk-free interest rate 3 percent Market risk premium 5 percent a. Estimate the target firm's…Q2. You are interested in purchasing the common stock of Inch, Inc., which is currently priced at $ 40. The company is expected to pay a dividend of $3 next year and to grow at a constant rate of 8 percent. What should the market value of the stock be if the required rate of return is 15.75 percent? Is this a good buy? Why or why not? pls explain in detailsAnswer using the Gordon Growth Model under the Efficient Market Hypothesis Jimmy decides to invest in MSFT common stock. He expects that the stock will pay $1 dividend per share next year and its price will be $20 per share by the end of year when he is going to resell the stock. After some careful analysis Jimmy finds that the company's business operation risk has increased over the past year due to the recent financial and economic crisis. As a result, his required rate of return on the stock is 15%. What is the maximal price that Jimmy is willing to pay for the stock? a. $16.33 b. $17.15 c. $18.26 d. $19.47 e. $20.18
- Suppose you think that the market price of a share of Facebook will increase in the next few months from its current price of $200 per share. Suppose as well that you have $10,000 to invest - enough money to buy 50 shares. If you buy on margin, though, you can purchase an additional 50 shares for a total of 100 shares. (This assumes a 50% margin requirement.) If three months from now Facebook stock is worth $225 per share and you sell your shares, how much MORE money did you make by buying on margin compared to buying shares without the use of margin. (Note that we ignore the cost of borrowing.) $1000 $2,500 $1,250 $250 $7501. Suppose that there is a GHS100,000 preference share with a 15% annual dividend rate and that the required rate of return on similar instruments is 25%. Assuming the share holder receives this dividend on the shares forever. Required: What is the present value of this investment? 2. You have just won a raffle conducted by a famous brewery in Ghana with a prize which pays GHS100,000 a year for 10 years. If the interest rate is 15% per annum, what is the value of this lottery?20 Upper Crust Bakers just paid an annual dividend of $3.10 a share and is expected to increase that amount by 4 percent per year. If you are planning to buy 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 12 percent at the time of your purchase? A $38.83 B. $41.91 C $37.33 D $38.16 ов ос OD OA