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What is the irr achieved for the vc

Assignment Help Corporate Finance
Reference no: EM13212638

1 You are a venture capitalist.

You are estimating a new project will have a beta of 5.

What is your required return, using the CAPM, if risk free rate is 5% and the market risk premium is 4%?

2 What is the Cash flow to owners, given the following information:

(Calculate After tax cash flow after Capex)

Cash from operations

650
Tax Rate


28%
Interest Expense

135
Depreciation


245
Total Debt payment (P + I)

235
Capital Expenditures

55

2. Assume a venture capitalist became your partner by injecting $500k into common equity of your company.

The venture capitalist / partner owns 50% of the entity, a "C" corporation (fully taxable entity).

Assume the entity is stabilized and sustaining and produces the following cash flows:

These are considered retained earnings after CapEx and all debt service; able to be distributed to owners.

without any detriment to the entity.
$ in '000's
Year 1 2 3 4 5
Cash Flows 250 265 275 277 285

These cash flows are distributed to owners of the corporation.

Furthermore, at the last day of year 5, the firm is sold for 5 times cash flow.

The Venture capitalists tax rates are as follows:

Ordinary income 28%

Capital Gains 15%

What is the IRR achieved for the VC?

Attachment:- Capital-Sourcing.xls

Reference no: EM13212638

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