You are the owner of a graphic design firm that has a number of high-end clients. Your business started up last year and is financed by three angel investors. Your initial pro forma showed that you were going to be very profitable and return a maximum of $5 million to the angel investors within five-to-six years. The angel investors expect a return of 14 percent on their investment and originally invested $1 million in your startup. At this rate, the net present value (discounted cash flow of the future returns) was $3.8 million (Present Value of future discounted cash flows). Q3. You have now completed Year 3 of your venture and met many but not all of your scorecard targets. Investors have contributed $3.2 million to-date. You are finding that you will need an additional $2 million from investors before reaching your breakeven, when internal operations will generate enough cash for the business to be self-sufficient. Your revised five-year discounted cash flow analysis shows a value of $4.3 million (new Present Value of discounted cash flow – a new node on the Innovation Accounting decision tree). If the future is as predicted, will this represent a good investment for the angel investors? Be specific as to why. What are your options?
You are the owner of a graphic design firm that has a number of high-end clients. Your business started up last year and is financed by three angel investors. Your initial pro forma showed that you were going to be very profitable and return a maximum of $5 million to the angel investors within five-to-six years. The angel investors expect a return of 14 percent on their investment and originally invested $1 million in your startup. At this rate, the net present value (discounted cash flow of the future returns) was $3.8 million (Present Value of future discounted cash flows). Q3. You have now completed Year 3 of your venture and met many but not all of your scorecard targets. Investors have contributed $3.2 million to-date. You are finding that you will need an additional $2 million from investors before reaching your breakeven, when internal operations will generate enough cash for the business to be self-sufficient. Your revised five-year discounted cash flow analysis shows a value of $4.3 million (new Present Value of discounted cash flow – a new node on the Innovation Accounting decision tree). If the future is as predicted, will this represent a good investment for the angel investors? Be specific as to why. What are your options?
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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You are the owner of a graphic design firm that has a number of high-end clients. Your business started up last year and is financed by three angel investors. Your initial pro forma showed that you were going to be very profitable and return a maximum of $5 million to the angel investors within five-to-six years. The angel investors expect a return of 14 percent on their investment and originally invested $1 million in your startup. At this rate, the net present value (discounted cash flow of the future returns) was $3.8 million (Present Value of future discounted cash flows).
Q3. You have now completed Year 3 of your venture and met many but not all of your scorecard targets. Investors have contributed $3.2 million to-date. You are finding that you will need an additional $2 million from investors before reaching your breakeven, when internal operations will generate enough cash for the business to be self-sufficient. Your revised five-year discounted cash flow analysis shows a value of $4.3 million (new Present Value of discounted cash flow – a new node on the Innovation Accounting decision tree). If the future is as predicted, will this represent a good investment for the angel investors? Be specific as to why. What are your options?
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