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

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

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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(EBIT-EPS analysis) A group of retired college professors has decided to form a small manufacturing corporation that will produce a full line of traditional office furniture. The investors have proposed two financing plans. Plan A is an all-common-equity alternative. Under this agreement, 1 million common shares will be sold to net the firm $20 per share. Plan B involves the use of financial leverage. A debt issue with a 20-year maturity period will be privately placed. The debt issue will carry an interest rate of 10 percent, and the principal borrowed will amount to $6 million. The marginal corporate tax rate is 21 percent. a. Find the EBIT indifference level associated with the two financing proposals. b. Prepare a pro forma income statement that proves EPS will be the same regardless of the plan chosen at the EBIT level found in part a. c. Prepare an EBIT-EPS analysis chart for this situation. d. If a detailed financial analysis projects that long-term EBIT will always be close to…
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1)Warwickshire plc is appraising a new project in a different line of business to its core operations. It has identified a suitable company, Nottingham plc, to use as a proxy. Details are as follows:Equity beta of Nottingham 1.250Market value of Nottingham's debt: £39mMarket value of Nottingham's equity: £45mCorporation Tax rate (both companies): 30%If Warwickshire is finance by £95m of equity and £95m of debt what would a suitable proxy equity beta for Warwickshire plc to use in the appraisal process? 2) Ms Obang is reviewing the performance of one of the shares in her portfolio. She bought the share a year ago for £4.00 (ex-div). Over the year it paid a dividend of 20p and the share price currently stands at £4.20 (ex-div). The shares equity beta is 1.4. The yield on short-date Treasury Bills over the year has been 1.2% and the Market Return is 6%. Using the CAPM, what has been the performance of the share over the last year? 3) The following information relates to the acquisition of…
Start-Up Industries is a new firm that has raised $360 million by selling shares of stock.Management plans to earn a 20% rate of return on equity, which is more than the 15% rate of return available on comparable-risk investments. Half of all earnings will be reinvested in the firm. What will be Start-Up’s ratio of market value to book value? What will be Start-Up’s ratio of market value to book value if the firm can earn only a rate of return of 5% on its investments?
Suppose the stock of the konikoyu company a publisher of college textbooks has a beta (B) of 1.3. The firm is 100 percent equity financed; that is it has no debt. Konikoyu is considering a number of capital budgeting projects that will double its size. Tlbecause these new projects are similar to the firm's existing one, the average of the new beta on the projects is assumed to be equal to konikuyo existing beta. The risk free rate is 7percent. The appropriate discount rate for these new projects assuming a market risk premium of 9.5 percent has been calculated. What are the two key assumptions we made in the case of konikoyu company cost of capital calculations?
The Hartley Hotel Corporation is planning a major expansion. Hartley is financed 100 percent with equity and intends to maintain this capital structure after the expansion. Hartley’s beta is 1. The expected market return is 18 percent, and the risk-free rate is 9 percent. If the expansion is expected to produce an internal rate of return of 17 percent, should Hartley make the investment? Round your answer to one decimal places. Based on the cost of capital of %, Hartley invest.
The Hartley Hotel Corporation is planning a major expansion. Hartley is financed 100 percent with equity and intends to maintain this capital structure after the expansion. Hartley’s beta is 0.8. The expected market return is 15 percent, and the risk-free rate is 8 percent. If the expansion is expected to produce an internal rate of return of 14 percent, should Hartley make the investment? Round your answer to one decimal places. Based on the cost of capital of ________ %, Hartley should invest ____ or not invest ______
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Globex Corp. is an all-equity firm, and it has a beta of 1. It is considering changing its capital structure to 60% equity and 40% debt. The firm's cost of debt will be 6%, and it will face a tax rate of 25%. What will Globex Corp.'s beta be if it decides to make this change in its capital structure? Now consider the case of another company: US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its curre is 25%. It currently has a levered beta of 1.15. The risk-free rate is 3.5%, and the risk 1.65 1.58 1.80 1.50 e-tax cost of debt is 6%, and its tax rate m on the market is 7.5%. US Robotics
CorpCo is a large manufacturing firm with many stockholders. The firm is considering investing $300,000 for a period of five years. Expected earnings are $50,000 in year 1, $60,000 in year 2, $75,000 in year 3 and $90,000 in years 4 and 5. Should the firm decide to invest, if the interest rate is 8%?

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