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Management team identifies a security software firm, DigiVault, that has developed a 256-bit data encryption key that is licensed by Fortune 100 companies and governments to protect sensitive database information from prying eyes. The firm's founders are out of money and want to sell their technology. Because you and your team don't have enough money to acquire the firm outright on your own, you turn to outside sources of funding. A venture bank is willing to put up a $3.5 million, five-year loan at 11% per year, which only has interest payments due during its life; the principal balance will be paid off at the liquidity event. Your team puts up $750,000 of its own capital. One of your friends from the MBA program is a venture capitalist, and his firm agrees to invest $3.5 million at an expected 60% annual return for five years, at which time they expect a liquidity event in order to obtain their money and the return back. Include all your calculations to support each answer in order to earn full credit. Answers must be completed in sequence. Required: (a) Assume that in five years, DigiVault will have an expected exit enterprise value of $48 million, based on an EBITDA multiple of 5.0 from similar exit transactions. What does this indicate the firm's expected EBITDA will be at that time? (b) Given the future value calculated in (a), what will be the equity value at that time? (c) Because the VC firm expects a 60% compound return on its investment, what would be the dollar value of its portion of the equity value you calculated in (b)? (d) Based on your answer in (c), what would be the amount of the equity up front that you would have to give up in order to obtain DigiVault's original venture capital investment? (e) What will be the dollar value of the management team's original $750,000 equity investment at the time of the liquidity event?
Given your answers to ( a) and ( b), how are stock prices affected by changes in investor's required rates of return?
If you purchase the car, you will it off in monthly payments over the next three years at a 7 percent APR. You believe that you will be able to sell the car for $18,000 in three years.
What would make for a larger increase in the stock's variance: an increase of .15 in its beta or an increase of 3% in its residual standard deviation?
Newman Manufacturing is planning a cash purchase of the stock of Grip Tool. During the year just completed, Grips earned $4.25 par share and paid cash dividends of $2.55 per share.
Why should the definition of law emphasize enforcement? To what three factors do courts look for evidence of implied partnership?
Write down the advantages and disadvantages associated with network structures? Justify your answers. How does technology complexity affect organizational structure? Justify your answer with examples.
Write a review of the article "Mutual Fund Fees Around the World" by Ajay Khorana, Henri Servaes and Peter Tufano. Review of Financial Studies, 22(3), 1279-1310.
What did you learn from reading a summary of "A Random Walk Down Wall Street" and how will you apply it in your investing life? Is there anything that you don't agree with?
Write down the advantages and limitations of financial management of future and present values of money, annuities, interest rates, uneven cash flow, and amortization?
Better Life Nursing Home, Inc. has maintained dividend payment of $4 per share for many years. The same dollar dividend is expected to be paid in future years. Determine the value of company's stock.
A common stock is held for two years, during which time it receives an annual dividend of $10. The stock was trade for $100 and generated an average annual return of 16 percent.
Computation of the present value of the contract and what was the present value of this contract in January when Schneider signed it
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