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During the survival stage of a venture's life cycle,




1) During the survival stage of a venture's life cycle, the primary source (s) of funds are;a. investment bankers, business angles, and business operations;b. business angles, venture capitalists, business operations and entrepreneur's assets;c. business operations, government assistance, suppliers and customers,and venture capitalists;d. commercial banks, investment bankers, business operations and suppliers;e. none of above;2) Hydroxy map is a manufacturer of underwater mapping technology. If the firm received an investment of $4.7 million, and its postmoney valuation is $12.5 million, what was the firm's premoney valuation?;a. $17.2 million;b. $7.8 million;c. $4.7 million;d. $15.1 million;e. none of the above;3) Your management team identifies a biotech firm, BioBalance, that has found a new diabetes treatment. 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 an $8 million, four-year loan at 14% 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 $1 million of its own capital. One of your friends from the MBA program is a venture capitalist, and his firm agrees to invest $4 million at an expected 40% annual return for four years, at which time they expect a liquidity event in order to obtain their money and return back. Assume that in four years, BioBalance will have an EBITDA of $3.75 million. 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 four years, BioBalance will be valued with an EBITDA enterprise exit multiple of 8.0. What will be the anticipated enterprise value of the firm at that point?;(b) Given the future value calculated in (a), what will be the equity value at that time?;(c) Because the VC firm expects a 40% 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 their original venture capital investment in BioBalance?;(e) What will be the dollar value of the management team?s original $1 million equity investment at the time of the liquidity event? (Points: 50);4) Precision Manufacturing (PM) has 10 million shares of stock outstanding that trade at $120. The risk-free interest rate is 3% and the market risk premium is 7%. This stock has a beta of 2.2. PM also has $500 million in 12% bonds outstanding, and the company has a 40% tax rate. Show all calculations for each of your answers to earn full credit.;Part 1: a) Calculate the firm?s market capitalization and then calculate the enterprise value. b) Use the CAPM formula to determine the firm?s cost of equity. c) Utilize this information to calculate Precision Manufacturing?s weighted average cost of capital.;Part 2: a) Assume that PM issues $240 million in common stock to buy back $240 million in bonds in order to recapitalize the firm and lower its annual interest expenses. What is Precision Manufacturing?s new WACC? b) Finally, discuss why there is a change in WACC and explain the impact of the components of capital structure on a company?s cost of capital.


Paper#23921 | Written in 18-Jul-2015

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