### How much of the value of ace would belong to the venture

Assignment Help Finance Basics
##### Reference no: EM131124337

The venture investors and founders of ACE Products, a closely held corporation, are contemplating merging the successful venture into a much larger diversified firm that operates in the same industry. ACE estimates its free cash flows that will be available to the enterprise next year at \$5,200,000. Since the venture is now in its maturity stage, ACE's free cash flows are expected to continue to grow at a 6 percent annual compound growth rate in the future. A weighted average cost of capital (WACC) for the venture is estimated at 15 percent. Interest-bearing debt owed by ACE is \$17.5 million. In addition, the venture has surplus cash of \$4 million. ACE currently has five million shares outstanding, with three million held by venture investors and two million held by founders. The venture investors have an average investment of \$2.50 per share while the founders' average investment is \$.50 per share.

A. Based on the above information, estimate the enterprise value of ACE Products. What would be the value of the venture's equity?

B. How much of the value of ACE would belong to the venture investors versus the founders? How much would the venture be worth on a per-share basis?

C. What would be the percentage appreciation on the stock bought by the venture investors versus the investment appreciation for the founders?

D. If the founders have held their investments for five years, calculate the compound annual or internal rate of return on their investments. The venture investors made a first-round investment of 1.5 million shares at \$2 per share four years ago. What was the compound annual rate of return on the first-round investment?

Venture investors made a second-round investment of 1.5 million shares at \$3 per share two years ago. Calculate their compound rate of return on this investment.

#### Questions Cloud

 From the viewpoint of providing maximum justice : "From the viewpoint of providing maximum justice lo all concerned, the agency shop constitutes the optimum union security arrangement." To what extent, if any, do you agree with this statement? Drawing upon examples from your own organisation : Drawing upon examples from your own organisation, or one with which you are familiar select an appropriate recorded measure for five equal periods ( suc as turnover, profit, available from annual reports etc) and having obtained values over the 5 equ.. Speech topics using the strategy specified in parentheses : Write a creative introduction for each of the following speech topics using the strategy specified in parentheses. Something unusual or extraordinary that you have done (personal story) Practicing safe sex (humor) Extramarital affairs and cheating (s.. Determine aces enterprise value from the perspective of bet : Determine ACE's enterprise value from the perspective of BETA. What is ACE's equity worth to BETA in dollar amount and on a per-share basis? Use the per-share value of ACE from Problem 1 and the per-share value from this problem and establish a range.. How much of the value of ace would belong to the venture : Based on the above information, estimate the enterprise value of ACE Products. What would be the value of the venture's equity? How much of the value of ACE would belong to the venture investors versus the founders? Ipo will have on competitors in the electric car market : From the Headlines—Tesla: Comment on Tesla’s trip from incorporating in 2003 to its IPO in 2010. What impact do you think the IPO will have on competitors in the electric car market? What are the steps or stages in a typical execution and time : What are the steps or stages in a “typical” execution and time line schedule used in planning and executing an IPO? Describe some of the preparations that a venture : Describe some of the preparations that a venture can undertake that may increase the possibility of IPO success. Indicate some of the differences between the nasdaqs : Indicate some of the differences between the NASDAQ’s National Market System and SmallCap listing requirements.

### Write a Review

#### What should be the market price of these bonds

General Electric made a coupon payment yesterday on its 6.75% bonds that mature in 8.5 years. If required return on these bonds is 8% APR, what should be the market price of these bonds?

#### What is pretax cost of debt percentage and cost of equity

Kose, Inc., has a target debt-equity ratio of 0.78. Its WACC is 12 percent, and the tax rate is 33 percent. What is the Pretax cost of debt percentage and cost of equity percentage?

#### Estimate the base case cost of each alternative regarding

1. estimate the base case cost of each alternative regarding the provision of ultrasound services. for now ignore the

#### Create a risk-free hedged portfolio

What are several ways to use stocks and options to create a risk-free hedged portfolio? Support your answer by providing examples of specific stocks and options that are used to create the portfolio

This question is from Finance and it explains a scenario where an investment advisor misleads his clients in investing in a company's shares whose prices have been falling.

#### The financial institutions reform recovery and enforcement

1. in 1999 congress passed a sweeping legislation that allow banks securities firms and insurance companies to

#### Faulknerrsquos fine fries inc fff is thinking about

aqampq has ebit of 2 million total assets of 10 million stock holderrsquos equity of 4 million and pretax interest

#### What is the expected value of going to court

Create a decision tree to represent this situation. What is the expected value of going to court? What should Samuel do?

#### Business valuation based on capital market analysis

A business valuation based on Capital market analysis for "Woodside Petroleum Limited" Part 1 (share trading and liquidity): information on the volume of trading and frequency of trading

#### At least 4 different elements of the system why the reports

although she does not report to you you have already begun a series of discussions with the companys management

#### How much must be deposited today in an account earning

How much must be deposited today in an account earning 4% annually to accumulate a 15% down payment to use in purchasing a car one year from now, assuming that the car's current price is \$30,000, and inflation will be 2%? A \$4,327 B \$4,545 C \$4,41..

#### How much could sales have increased

Assuming that its fixed assets were operating at only 85% of capacity, by how much could sales have increased, both in dollar terms and in percentage terms, before NWC reached full capacity?