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. 5.53

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. 5.53

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

You have started a company and are in luck—a venture capitalist has offered to invest. You own 100% of the company with 4.56 million shares. The VC offers $1.03 million for 820,000 new shares. b. What is the post-money valuation? c. What fraction of the firm will you own after the investment?
Venture Capital. Look back at your restaurant chain venture. Suppose that when you first approach your friendly VC, he decides that your shares are worth only $.40 each. (LO15-1) a. How many shares will you need to sell to raise the additional $500,000? b. What fraction of the firm will you own after the VC investment?
Your start-up company needs capital. Right now, you own 100% of the firm with 9.99 million shares. You have received two offers from venture capitalists. The first offers to invest $2.99 million for 1.03 million new shares. The second offers $1.95 million for 500,000 new shares. a. What is the first offer's post-money valuation of the firm? b. What is the second offer's post-money valuation of the firm? c. What is the difference in the percentage dilution caused by each offer? d. What is the dilution per dollar invested for each offer? a. What is the first offer's post-money valuation of the firm? The first offer's post-money valuation will be $. (Round to the nearest dollar.)
Q.You are CEO of a high-growth technology firm. You plan to raise $180m to fund anexpansion by issuing either new shares or new debt. With the expansion, you expectearnings next year of $24m. The firm currently has 10m shares outstanding, with a priceof $90 per share. Assume perfect capital markets.a. If you raise the $180m by selling new shares, what will the forecast for next year’searnings per share be?b. If you raise the $180m by issuing new debt with an interest rate of 5%, what willthe forecast for next year’s earnings per share be?c. What is the firm’s forward P/E ratio (i.e., the share price divided by forecastedearnings) if it issues equity? What is the firm’s forward P/E ratio if it issues debt?How can you explain the difference?
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.)
Q.An all-equity company is considering borrowing $10,000,000 and using the borrowed funds to repurchase shares. The company's cost of equity is 9%. EBIT is expected to be $3,600,000 every year forever. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied. If the company proceeds with the capital restructing, what will be the value of the company according to M&M Proposition I without taxes?
Hanover Tech is currently an all equity firm that has 320,000 shares outstanding with a market price of €24 a share. The current cost of equity is 15.4 per cent and the tax rate is 36 per cent. The firm is considering adding €1.2 million of debt with a coupon rate of 6 per cent to its capital structure. The debt will be sold at par value. What is the levered value of the equity? Show your steps. can u please upload the excel file
ABT is a venture capital firm, they focus their investments on software companies in the US. Their most recent investment opportunity is in VMware corporation. They decide to invest in VMware and want to buy 300,000 shares. VMware corporation’s current stock price is $123.58, and the expected dividend yield is 6.1%. What is the expected value of the first dividend payment at the end of the year? b) How would you use the dividend yield model to value the price of a stock if it presently does not pay dividends but is expected to pay dividends in the future
You are looking to purchase Company A. Your projections for the EBITDA of Company A are as follows: EBITDA $21.51 Year 1 $2.0 O $19.77 $21.78 Your cost of capital is 20%. Your investment banker shows you the EBITDA multiples for the following comparable companies: Company x 5.0x Company y 5.50x Company z 6.0x Year 2 $3.0 Given the above information what is the price that you would like to offer to Company A shareholders? Not enough information Year 3 $3.5 None of the above Year 4 $4.0 Year 5 $5.0
AVC firm is willing to invest $40 million in a startup, which is expected to generate $150 million in EBITDA in eight years - when the VC is planning to exit this investment. Venture capital analyst collected the data on similar companies in the same industry - presented below. What percentage ownership of the startup the VC company is likely to demand, if it applies 25% IRR across all of its investments? Enter your answer as a decimal, e.g. 4.55% as 0.0455 $millions Market Cap Company1 Company2 Company3 Company4 Company5 Revenue 2,543 3,714 1,958 2,894 3,470 6,201 9,018 5,227 7,358 8,402 EBITDA 760 1,258 620 750 1,025
The startup management is looking to raise venture capital. The pre-money valuation is $10,000,000 with two co-founders holding 40% of the shares each and two investors holding 10% respectively. Now, the platform receives a venture capital injection of $10,000,000. Answer the following questions: i. What is the post-money valuation in $? ii. How much equity does each founder hold in % and $ after the capital injection? iii. How much equity does the venture capital firm hold in % and $ after the capital injection?
A firm has 10 million shares outstanding with a current market price of P20 per share. There is one investment project available to the firm. The initial investment of the project is P20 million, and the NPV of the project is P10 million. What will be the firm’s stock price if capital markets fully reflect the value of undertaking the project? a.P19b.P20c.P21d.P22