Can you please answer this accounting question ? An entrepreneur seeks $11 million from a VC fund. Theentrepreneur and fund managers agree that theentrepreneur's venture is currently worth $25 million andthat the company will likely be ready to go public in fiveyears. At that time, the company is expected to have a netincome of $7.5 million, and comparable firms are expectedto be selling at a price/earnings ratio of 30. Given thecompany's stage of development, the venture capital fundmanagers require a 45% compound annual return on theirinvestment. What fraction of the firm will the fund receivein exchange for its $11 million investment? Round youranswer to two decimal places.

Step 1: Introduction to the Venture CapitalVenture capital is recognized as a component of private…

Answered: An entrepreneur seeks $11 million from…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 6P

See similar textbooks

Similar questions

Please help with this question
A firm is considering a new project which would be similar in terms of risk to its existing projed The firm needs a discount rate for evaluation purposes. The firm has enough cash on hand provide the necessary equity financing for the project. Also, the firm has 1,000,000 common shan outstanding with a current market price of GHe11 per share. Next year's dividend is expected be GHc1 per share and the firm estimates dividends will grow at 5% per year for the next sever years. The firm also has 150,000 preferred shares outstanding with a current market price GH¢10 per share. Dividend of GHe0.9 per share is paid on preferred stock. The firm has a total o GH¢10,000,000 in debt outstanding. The debt stock is currently valued at of GH¢9,500,000. Th yield on the debt is 8%. The firm's tax rate is 20%. The project requires an initial capital investmen of GHc500,000. However, the project is expected to generate GH¢100,000 annually in perpetuity. Required: i Calculate the WACC for this project?…
Use the following given information of Greyhorse Partners to answer the following question. Greyhorse is willing to provide $1.2 million fundings in exchange for a share of the common stock in a firm called Bull-Builders. As this the first-stage financing, Greyhorse’s required rate of return is 50% per year based on a 5-year investment horizon without receiving any cash until the end of this period. Forecast of EBITDA for Bull-Builders in year 5 is $6m. EBITDA multiple of similar firms is 7 times. Bull-Builders’ projected balance sheet at year 5 includes $100,000 in cash and $1m in interest-bearing debt. What is the post-money value of the firms’ equity today? A. $42,000,000 B. $41,100,000 C. $4,212,720 D. $5,412,720
A private equity firm is aiming to buy a company. Under private equity ownership, the company will earn an annual cash flow of $10mln up to infinity. The first cash flow is expected next year. The estimated IRR is 13%. What is the investment outlay (in millions) closest to?
PetlQ, a pet service venture, is seeking the first-round financing. NaVenture, a professional venture capital firm, is considering to invest $8 million in PetlQ. NaVenture needs to decide to ask for how much percent equity ownership in PetlQ in exchange for this $8 million investment. NaVenture has a target annual rate of return of 30% on ventures at the similar stage of life cycle as PetlQ is currently in. The following table listing the 3 cash flow scenarios for PetlQ when NaVenture expected to exit at the end of 4 years. Amount invested $8,000,000 Required return 30% Outcome Probability Year0 2 3 4 Black Hole 0.25 Living Dead Venture Utopia O $15,000,000 O $80,000,000 0.55 0.3 In order to minimize its investment risk, NaVenture requires an annual $2 million preferred dividend under the utopia scenario (including the exit year) in addition to the $80 million cash inflow in Year 4 (the exit year). No preferred annual cash flows are expected under either the black hole or the living…
A financial services company is considering a new investment in a new technology platform for investment management. The company has identified a fintech startup that is seeking funding at a valuation of $5 million. The company expects to receive a dividend of $200,000 per year over a five year term and sells it equity stake at a valuation of $10 million. What is the expected return on investment if the financial services company invests $2 million in the fintech startup
Jacob PLC is listed on the Stock Exchange. Analysts estimate the stock’s equity beta to be at 2.17. The S&P 500 Index is expected to earn a return of 15 percent per annum. The T-bill rate is at 5 percent per annum. The expected cashflows of the two projects are as shown on the table. The firm plans to invest in one of two mutually exclusive projects P or Q where both project is the same risk as the firm’s other assets. Required:(a) Calculate the company shareholders’ required return. (b) Using the net present value approach, which project should Yulbury plc accept? Assume the discount rate to be the cost of equity capital. (c) The two projects have the same project beta, being 1.52. Derive the projects’ required return and advise on project selection using the net present value and the discounted payback period approaches. (d) Assume that the general inflation rate has risen by 25 percentage points. Discuss the impact of this on the cost of equity, the after-tax weighted average…
A firm is considering three possible one-year investments, which we will name X, Y, and Z. ∙ Investment X would cost $10 million now and would return $11 million next year, for a net gain of $1 million. ∙ Investment Y would cost $100 million now and would return $105 million next year, for a net gain of $5 million. ∙ Investment Z would cost $1 million now and would return $1.2 million next year, for a net gain of $200,000. The firm currently has $150 million of cash on hand that it can loan out at 15 percent interest. Which of the three possible investments should it undertake? a. X only. b. Y only. c. Z only. d. X and Y. e. X and Z. f. X, Y, and Z.
A potential investor is willing to provide S500, 000 in first - round financing with the expectation of a 50% annual compound rate of return over the next five years. Founders currently hold 1,000, 000 million shares of stock. The venture is expected to produce $500,000 in net income in year 5. A similar firm with annual net income of $1,000,000 sold shares to the public for $10,000,000. What is the post- money valuation? a. $499, 954 b. $408, 377 c. $658,436 d. $249,977 (Please provide me with the equation for the BA2 Plus calculator method.)
You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow 0 100 1-10 + 20 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.47. Assuming that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 15%, what is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 2 decimal places.) Net present value million
An analyst has the following projected free cash flows for an investment: Year 1: $125,050; Year 2: $137,650; Year 3 to 15: $130,000 a year; Year 16 to 20: $200,000 a year. The investment is expected to have a terminal value of $500,000 at the end of Year 20. If the analyst has estimated a present value of $1 million for the investment, what is the discount rate that she/he has used in calculations.
You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years 1-10 Cash Flow -100 +18 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.38. Assuming that the rate of return available on risk-free investments is 7% and that the expected rate of return on the market portfolio is 15%, what is the net present value of the project? Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 2 decimal places. Net present value S 17.14 million

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS