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Smith Cashwants to estimate the value of his idea...

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Question

Smith Cashwants to estimate the value of his idea for a new company in Lake City. The project is in the Start-up Stage. He began in the spring of 2013 with site selection and purchase/lease payments; contracting build out; equipment procurement and staffing at a total cost of $ 450,000. He expects the company to be opened in 2014, but will not begin to Build Cash through positive Cash Flows until 2017. After tax cash flows during the start-up/growth periods are expected to be: 2014 (-$0.23 MIL); 2015 (-$0.3 MIL); 2016 (-$0.1 MIL); 2017 ($ 1.2 mil) 2018($ 4.5 MIL). After 2018 company Cash Flows are projected to grow at 3% per year. Smith will personally fund all costs through early 2014, when he will need to raise $ 1.5 million in external capital which he expects will get the project to positive cash flow and sustainment in 2015. He expects that 2015 investors will require a 40% return to compensate for the risk of they are taking at that time. He needs to estimate the value of his business before beginning negotiations with investors. What is the value of the DISCREET CASH FLOWS which Smith projects through 2017? What is the Terminal Value of the company after it reaches the sustainment/maturity stage of its life cycle? What percentage ownership interest will Smith have to surrender to raise $1.2 MIL in 2015? If the company sells to an outside buyer to net $13,500,000 in 2017; and the only two owners are Smith and the 2015 investor, how will the Sales proceeds be divided? If the investors? money was tied up for 2.5 years, what return did he get on his investment? What return would be realized if the investor insisted upon (AND HE GOT) 35% participation in company value and a 2X Liquidation Preference in 2015?

 

Paper#1773 | Written in 18-Jul-2015

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