How do venture capital firms design successful deals

Reference no: EM133261612

True/False -

1. If shareholders do not like the policies that management pursues, their easiest solution is to vote in a different board of directors.

2. The price at which new shares are sold to investors almost always exceeds par value. The difference is entered into the company's accounts as additional paid-in capital, or capital surplus.

3. Suppose a firm needs fresh capital, but its management does not want to give up its controlling interest. The existing shares could be labeled Class A, and then Class B shares with limited voting rights could be issued to outside investors.

4. When securities are priced fairly, then financing at current market rates is a positive NPV transaction.

5. All large corporations have little debt; it is a necessary condition for maximizing growth.

Essay Questions -

Q1. List four protective covenants that you might be interested in as a prospective bondholder. Briefly describe why these would be realistic bondholder concerns. How would a convertible bondholder decide whether to exercise his rights of exchange? (Words- 300 to 400)

Q2. How do venture capital firms design successful deals? Why it is likely that venture capital is disbursed in installments, rather than issuing all necessary funds at once? (Words- 300 to 400)

Q3. (A) Calculate the annual value of an interest tax shield under the assumption that a firm maintains debt at a permanent $1,000,000 level and rate of 12%. The corporate tax rate is 35%. If there is no chance of financial distress, how does the value of the firm change as a result of this debt?

(B) How are dividends paid and how do companies decide on dividend payments? Discuss the concept of dividend signaling. (Words- 250 to 350)

Q4. Discuss how agency problems can develop between shareholders and bondholders when the firm is experiencing financial distress. Is there a rule for finding optimal capital structure? (Words- 300 to 400)

Reference no: EM133261612

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