You are working for a venture capitalist (VC). The VC is interested in acquiring a one-third stakein a start-up. The total value (i.e., PV of future expected cash flows) of the start-up is one of$30M, $45M, $60M, $75M, $90M. The VC regards the five outcomes as equally likely.The start-up is currently wholly owned by its founder. The founder knows the details of thestart-up's prospects, and so knows the start-up's total value.The founder needs liquid cash to cover personal expenses, and moreover is risk averse andwould like to partially diversify. For these reasons, the founder values any offer from the VC at50% more than the amount of the offer. For example: If the VC offers $10M for the one-thirdstake, the founder values this offer at $15M.Assume that if the founder is indifferent between accepting and rejecting an offer then thefounder accepts.The VC seeks to maximize expected profits.What offer(s), if any, should the VC make? Show your work by filling out the following table:Vc's offerExpected VC's profit$6.67M$10M$13.34M$16.67M$20M

Venture capitalist refers to when the capital is invested in a project and there is a substantial…

Answered: You are working for a venture…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The firm T, as a standalone business, has asset = $105,008,000, debt = $3,040,000, total number of shares NT = 3,565,315. An eminent entrepreneur A, along with an investment bank, estimate that a potential value of U = $42,003,200 can be unlocked after a takeover of T that will replace the current management of T and implement innovative ways to operate the business of T. The investment bank is hired to assist the takeover which costs F = $3,360,256 to the entrepreneur. The entrepreneur A already owns 12% of the shares of T through anonymous trading in the stock market. 1) If the entrepreneur A plans to pay $32.50 per share to buy all the remaining shares of T, how much cash does the acquiring entrepreneur A need? 2) With the offer price $32.50 per share, what would be the percentage change in the equity value of T’s shareholders excluding the acquiring entrepreneur, following the takeover? 3) If shareholders of T require rather a 18% premium, but entrepreneur A’s offer price remains…

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