Reference no: EM132609246

Pak Budi has the opportunity to buy equity from a company of Rp $ 3,000,000. Mr. Budi has $ 1,500,000 to invest and an investor company is willing to invest $ 1,500,000 with an expected return of 25% per annum. Mr. Budi should assume the additional $ 5,000,000 as a 5 year bank loan with interest of 12% per annum.

This means an initial enterprise value of $ 7,000,000 consisting of $ 4,000,000 long-term bank loan and $ 3,000,000 equity capital. Assume that the firm's valuation method and EBITDA multiples or the relative valuation model suggests an enterprise exit value of $ 12,000,000 based on EBITDA. $ 2,000,000 times 6.

Question a. How much equity will Pak Budi give up to generate an expected 25% annual rate of return to investors?

Question b. If the agreement is made according to Pak Budi's projections, what is the compound rate of return each year that Pak Budi will get over a period of 5 years?

Question c. Draw a Venture Valuation Pie that shows the company's current and future value and percentage of equity ownership.