Reference no: EM132176499
Task One
You are considering investing in a new venture. Based on the business plan of the entrepreneur, if the project is successful it is expected to generate the following cash flows for investors:
|
Year
|
Cash Flow
|
|
1
|
($50,000)
|
|
2
|
($20,000)
|
|
3
|
$ 300,000
|
|
4
|
$ 500,000
|
|
5
|
$ 800,000
|
The cash flow in the fifth year includes cash flows that would be realized from selling the venture to a strategic at that time. After conducting your own due diligence, you have concluded that the free cash flow estimates are reasonable.
Required:
a) Assume that your require a minimum of 25% return on your investment calculate the venture's present value
b) The entrepreneur is looking for seed capital of $ 100,000. What fraction of the ownership is required to cover your investment?
Task Two
For each of the following scenarios, recommend a suitable valuation method. Justify your recommendation and highlight the possible challenges that may be experienced in the application of the recommended valuation methods in that scenario
a) Republic Bank of Trinidad and Tobago
b) Rituals Coffee House
c) Xeros (from Individual Assignment #2)
Task Three
Petal Providers Corporation opens and operates "mega" floral stores in the United States. Revenues were $1 million with net profit of $50,000 last year when the first Petal Providers floral outlet was opened. If the economy grows rapidly next year, Petal Providers expects its sales to grow by 50 percent. However, if the economy exhibits average growth, Petal Providers expects a sales growth of 30 percent. For a slow economic growth scenario, sales are expected to grow next year at a rate of 10 percent. Management estimates the probability of each scenario occurring to be rapid growth is 0.30, average growth is 0.50, and slow growth is 0.20.
Petal Providers' net profit margins are also expected to vary with the level of economic activity next year. If slow growth occurs, the net profit margin is expected to be 5 percent. Net profit margins of 7 and 10 percent are expected for the average- and rapid-growth scenarios, respectively
Petal Providers Corporation is interested in estimating its additional financing needed to support a rapid increase in sales next year. Last year, revenues were $1 million; net profit was $50,000; total assets was $750,000; payables and accruals were $100,000; and stockholders' equity at the end of the year was $450,000. The venture did not pay out any dividends and does not expect to pay dividends for the foreseeable future.
To generate its forecasts Petal Providers Corporation assumes that the following will be held constant for the next year:
- the net profit margin
- the sales to total assets sales ratio
- the sales to payables ratio and
- the sales to accruals ratio
Required:
a) Estimate the dollar amount of sales expected next year under each scenario, as well as the expected value sales amount.
b) Estimate the dollar amount of net profit expected next year under each scenario, as well as the expected value net profit amount.
c) Estimate of the additional funds needed next year to support a 30 percent increase in sales? How would the answer change if the expected sales growth were only 15 percent?
Task # 1
From the perspective of the entrepreneur/founder, what are the advantages and disadvantages of an IPO as opposed to a private sale of the venture to a public listed company in exchange for shares in that company?
Your answer to this task should be between 250 to 500 words in length
Task # 2
Various business angels are offering to purchase a 20% equity stake in your friend's early-stage venture. Your friend requires your help in making the decision of selecting a business angel.
Required: Identify and discuss the issues that should be considered in making this decision,
Your answer to this task should be between 100 to 250 words in length
Task # 3
Venture Capital Institutions typically source investment capital from institutional investors such as family offices, pension funds, banking and non-banking entities and very high net worth investors. This investment capital is pooled into a fund to be invested into a portfolio of entrepreneurial ventures.
Required:
a) How can Venture Capital Institutions add value the founder and management team of the entrepreneurial venture?
b) How can Venture Capital Institutions add value to the institutional investors?
Your answer to this task should be between 250 to 500 words in length
Task # 4
A venture capitalist is eager to harvest the investment in an early stage venture. The venture capitalist has just informed the founders and management of this early stage venture that he intends to exercise its "demand registration rights". This will in essence "force" the entity to go public. The founders and the management believe that now is not the right time to issue an IPO. Consequently they are considering a leveraged buy-out of the investor.
Required:
a) From the perspective of the venture capitalist, what are the advantages and disadvantages of this leveraged buyout?
b) From the perspective of the founders and management, what are the advantages and disadvantages of this leveraged buyout?
Your answer to this task should be between 250 to 500 words in length
Task #5
The founder of an Oil Well Servicing Company has recently passed away. The family of the founder do not wish to continue with the business. The business is a going concern, however several unsuccessful attempts have been made to sell it. The family has decided to liquidate the business.
Required. Identify and discuss the challenges that may be faced by the family to liquidate the business.
Your answer to this task should be between 100 to 250 words in length
Please complete all the questions, giving workings where necessary and diagrams where necessary.
Explain:
a) I long call $80 for 6 months on a table. During the period of the contract the price increased to $100.00. Explain what I might possibly do.
c) I short put $40 for 3 months on a book. The price changes in 2 months to $60. Explain what will happen?
e) Jason entered into a floating rate loan with RBC Bank Limited at 12%. He also invest $200,000 into a mutual fund with XYZ Limited paying 5%. He plans to use the investment money to assist in repayment of the loan. He decides to engage in a collar with ABC Dealers Limited at a loan rate of 15% and an investment rate of 5%. Explain what will happen if the loan rate increases to 14% and the investment rate decreases to 4%?