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A venture with 2 million total common shares – 1.4 million owned by the entrepreneur and 0.6 million by an angel investor – had a post-money value of $8 million after its last (and only) round of outside financing. The company has run into some development delays and needs to raise additional capital. A new investor offers $500,000 in exchange for 200,000 new common shares.
a. If there is no ratchet agreement, what will be the post-money value after the $500,000 investment? How much is the entrepreneur’s stake worth?
b. Now assume the angel investor’s agreement includes a ratchet provision. Under the terms of the ratchet, the angel investor will receive enough new shares for free so that his average cost per share is the same as that of any new investor. Given your answer to part (a), and including the impact of the ratchet, what price per share would the new investor seek, and how many new shares would the existing angel investor receive? Now how much is the entrepreneur’s stake worth? Note: You can do this using Solver, by trial and error, or by finding the solution algebraically
ACME is a very cyclical type of business which is reflected in its dividend policy. The firm pays a $2.00 a share dividend every other year. The last dividend was paid last year. Five years from now, the company is repurchasing all of the outstanding..
Metroplex Corporation will pay a $5.10 per share dividend next year. The company pledges to increase its dividend by 4.00 percent per year indefinitely. If you require a 9.00 percent return on your investment, how much will you pay for the company's ..
Suppose that prior to a merger the stock price of the target company was $50 and the stock price of the acquiring company was $40. If the acquiring firm agrees to pay 1.5 share of their stock for every share of the target firms stock, then what premi..
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Antiques R Us is a mature manufacturing firm. The company just paid a $8 dividend, but management expects to reduce the payout by 7 percent per year indefinitely.
you have decided to pursue an mba degree either to further your career start a new career or achieve a personal goal.
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.20. What is the value of the unlevered firm? What is the value of the t..
Company A has sales of 4,481,550; income tax of 531,834; the selling, general, and admin expenses of 267,714; depreciation of 380,725; costs of goods sold of 2,496,660; and interest expense of 178,814. Calculate the amount of the firm's after-tax cas..
Walter Industries has $4 billion in sales and $1.7 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity. What is Walter's target fixed assets/Sales ratio? What level of sales could Walter Industries have obt..
Find the rate on a pure discount loan hedged with a long FRA if the loan is for $10 million and matures in 30 days, the FRA is 30-day LIBOR, the fixed rate on the FRA is 4 percent, and LIBOR at the time the loan is taken out is 5 percent.
Lawrence Industries' most recent annual dividend was $1.80 per share (D0=$1.80), and the firm's required return is 11%. Find the market value of Lawrence's shares when: Dividends are expected to grow at 8% annually for 3 years, followed by a 5% con..
The Star Exploration Agency, a unit of the Space Department, was established by Congress to begin operations at the beginning of fiscal year 2014. Prepare the following month-end statements: balance sheet, statement of net costs, statement of chang..
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