User Account

All Pages

Calculate the present value of each scenario or outcome

Assignment Help Finance Basics
Reference no: EM131124283

Venture Investors, LLC, is trying to decide how much percent equity ownership in Black Hawk Products, Inc., it will need in exchange for a $5 million investment. Vail Venture Investors has a target compound rate of return of 25 percent on venture investments like Black Hawk Products. Depending on the success of products currently under development, Vail Venture's investment in Black Hawk could turn out to be a complete failure (black hole), barely surviving (living dead), or wildly successful (venture utopia). Vail Venture assigns probabilities of 0.20, 0.50, and 0.30, respectively, to the three possible outcomes. Following are the three cash flow scenarios or outcomes for the Black Hawk Products investment that Vail Venture expects to exit at the end of five years.

Part A

A. Calculate the present value of each scenario or outcome for Black Hawk Products.

B. Calculate the weighted average of the present values for the three scenarios. What is the total equity value for the Black Hawk Products venture?

C. Determine the acquired percentage of final ownership of Black Hawk Products that Vail Venture Investors would need for its $5 million proposed investment.

Part B

Now assume under the venture utopia scenario that, in addition to the $50 million cash inflow in Year 5, there will be an annual $1 million preferred dividend (to be paid to Vail Venture Investors but not other equity investors). Vail Venture expects to receive this $1 million dividend under the venture utopia scenario in each of the five years that the Black Hawk investment will be maintained. No preferred annual cash flows are expected under either the black-hole or the living-dead scenario.

D. Calculate the acquired percentage of final ownership of Black Hawk Products that Vail Venture Investors would need to earn a 25 percent compound rate of return on its investment. Use the mean flow method described in the chapter. 

E. Use the expected present value (PV) method described in the chapter when solving for the acquired percentage of final ownership in Black Hawk that Vail Venture needs to earn its 25 percent target rate ofreturn.

Reference no: EM131124283

Questions Cloud

How professional venture capital got started after world war : Briefly describe how professional venture capital got started after World War II.
What is a professional venture capitalist : What is a professional venture capitalist? How does this occupation differ from that of an angel investor?
What percent of ownership must be sold to grant : What percent of ownership must be sold to grant the 100 percent three-year return? What is the resulting configuration of share ownership? Suppose the venture investors don't buy the business plan predictions and want to price the deal assuming a sec..
Calculate the internal rate of return irr : Calculate the internal rate of return (IRR) for each scenario or outcome for Black Hawk Products. Calculate the weighted average of the IRRs for the three scenarios. What is the expected IRR for the Black Hawk Products venture? What would be Vail Ven..
Calculate the present value of each scenario or outcome : Calculate the present value of each scenario or outcome for Black Hawk Products. Calculate the weighted average of the present values for the three scenarios. What is the total equity value for the Black Hawk Products venture?
What percentage of ownership of the nydeli dot com venture : Apply the VC method to determine the value of the NYDeli at the end of four years. If venture capitalists want a 40 percent compound annual rate of return on similar investments, what is the present value of your NYDeli venture? What percentage of ow..
What are the related premoney and post-money valuations : Suppose you are considering a venture conducting a current financing round involving an issue of 100,000 new shares at $3. The existing number of shares outstanding is 200,000. What are the related premoney and post-money valuations?
Interpret your results as they relate to the founders owner : Rework the two-stage example of Section 10.5 with first- and second-round required returns of 55 percent and 40 percent (instead of the original 50 percent and 25 percent). Interpret your results as they relate to the founders’ ownership and the feas..
Rework the two-stage example of section 10 : Rework the two-stage example of Section 10.5 with 1,000,000 initial founders’ shares (instead of the original 2,000,000 shares). What changes?

Reviews

Write a Review

Finance Basics Questions & Answers

  The 1-year libor rate is 10% with annual compounding

The 1-year LIBOR rate is 10% with annual compounding. A bank trades swaps where a fixed rate of interest is exchanged for 12-month LIBOR with payments being exchanged annually. The 2- and 3-year swap rates (expressed with annual compounding) are 11% ..

  Determine which of the costing systems best for your company

Develop a list of inputs along with their associated costs, such as labor, materials, and overhead. You can research this information, make it up, or do a combination of both. Be specific as to costs.

  Develop a frequency distribution

A student has completed 20 courses in the School of Arts and Sciences. Her grades in the 20 courses are shown below. Develop a frequency distribution and a bar chart for her grades.

  Describe the behavior of real exchange rates

Describe the behavior of real exchange rates. What methods can be used to forecast future spot rates of exchange? How can the international parity conditions allow you to forecast next year's spot rate?

  Incorrect financial projections

What would happen if your financial projections were based on incorrect information? For example if your Booked AR is significantly higher this quarter than the actual AR and cash inflows,

  Principal tool of financial analysis

Financial ratios are the principal tool of financial analysis. Ratios standardize the financial information of firms so comparisons can be made between firms of varying sizes.

  The chief at the ultrasound division of the

exercise 9.1 the chief at the ultrasound division of the radiologydepartment in a community hospital would like to

  What is the value of newport printing

Newport Printing paid a $2.50 dividend over the past year. During the coming year, the dividend is expected to rise by five percent, while the required return on stocks in this risk class is eleven percent. What is the value of Newport Printing?

  What is the internal rate of return of a project

What is the internal rate of return of a project that requires and investment of $1366 today and provides a single cash flow in year 5 of $1945. The appropriate discount rate is 10%.

  Adjust the floatation costs - cost of capital

Cost of Capital - various approaches that can be used to adjust the floatation costs and What are two approaches that can be used to adjust for flotation costs?

  Debate on shareholder primacy versus stakeholder primacy

Shareholder Primacy versus Stakeholder Primacy because pursuing Corporate Shared Value achieves both objectives simultaneously or is the debate still not resolved?

  Expected return on green equity

What is the expected return on Green's equity before the announcement of the debt issue? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd