Solution-Forecasts of revenues and free cash flows to the

Forecasts of revenues and free cash flows to the firm

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Reference no: EM132753253

You are a venture capitalizing considering making a SEK 100 million investment in Rörö Media, a young technology company, and you have been provided with the following forecasts of revenues and free cash flows to the firm.

Year 1 2 3

Revenues 500 1000 1500

FCFF (150) (50) 75

At the end of year 3, you expect the company to become a stable growth company, with year 3 FCFF, growing 2% a year in perpetuity, and to be acquired by a publicly traded company. The unlevered beta for the business is 0.90, but you are a sector-focused venture capitalist, and your portfolio of holdings has a correlation of only 0.5 with the market. (The risk free rate is 2% and the equity risk premium is 6%.).

Assuming that there is no debt or cash in the company, how much of the equity in the company should you demand as your fair share for the SEK 100 million investment?

Reference no: EM132753253

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Forecasts of revenues and free cash flows to the firm

Reference no: EM132753253

Reference no: EM132753253

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