What fraction of the firm equity will you need to sell

Assignment Help Financial Accounting
Reference no: EM132869913

Question - You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $23 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $4.4 million. Investors are willing to provide you with $4.4 million in initial capital in exchange for 40% of the unlevered equity in the firm.

a. What is the total market value of the firm without leverage?

b. Suppose you borrow $1.1 million. According to MM, what fraction of the firm's equity will you need to sell to raise the additional $3.3 million you need?

c. What is the value of your share of the firm's equity in cases (a) and (b)?

Reference no: EM132869913

Questions Cloud

Network scanning software tool : Select one network scanning software tool and explain in detail how it works and how detects network vulnerabilities.
Optimal performance of the database in long run : Defining relationships within a database can improve search capabilities and optimal performance of the database in the long run.
Find the expected return : The possible return (in %) under these situations is visualized to be 14, 8, 3 and -2 respectively. Find the expected return
Designers for new software product : Imagine you are leading a team of designers for a new software product. During the kickoff meeting, the team starts to discuss design guidelines.
What fraction of the firm equity will you need to sell : Suppose you borrow $1.1 million. According to MM, what fraction of the firm's equity will you need to sell to raise the additional $3.3 million you need
Compute the amount that Karen Company should report : Prepare all the necessary journal entries and compute for the amount that Karen Company should report as the effect of this accounting change
Business continuity planning and disaster recovery : You are a consulting team formed to advise a group of managers who are to review the technology policies for their organizations.
Construct a time series plot of housing starts : a. Construct a time series plot of housing starts. Do you see a pattern in the data?
What would be the present value of expected dividend stream : If the discount rate is 11.6%, what would be the present value of the expected dividend stream (aka the expected price of the firm's stock)

Reviews

Write a Review

Financial Accounting Questions & Answers

  Fixed and variable cost behavior

Killy and a key supplier have entered into an arrangement that will result in a per-unit decrease in Killy's variable cost of $0.50 next year. Rental space will also be reduced, thereby decreasing fixed costs by 10 percent. Given the new cost equatio..

  Calculate market or book ratio

Symphony Corp.'s stock price at the end of last year was $74.76, and the company's book value per share was $34.59. Calculate market/book ratio.

  Cost structure of the company with division losing money

Concentrate on the cost structure of the company with a division losing money. Let's say a division that is losing money actually has a positive contribution margin (i.e., sales less variable costs), but after we allocate corporate costs to it, it re..

  What is the projected operating profit for the coming year

Connelly Inc., What will be the operating profit if the additional $196,365 is spent on advertising and sales rise to 71,050 units?

  What should stock a sell for at end of an investor two year

Stock A has a current price of $25, a beta of 1.25, What should stock A sell for at the end of an investor's 2-year investment horizon?

  Measure the shade of blue of the additive

Dizzy Chemicals Ltd is a resident of the Republic of South Africa. It is a registered value-added tax (VAT) vendor with a 30 June financial year end.

  Determine accrual-basis service revenue

When converting from cash-basis,which of the adjustments should be made to cash receipts from customers to determine accrual-basis service revenue?

  Determine the compensation expense for the stock option plan

On October 15, 2012, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2013, 30 million stock options were granted, exercisable for 30 million shares of Ensor's $1 par common stock. D..

  Accounting equation to solve for the missing information

Use the accounting equation to solve for the missing information for Paid In Capital at 12/31/16 (don’t bother entering cents, just round to the nearest dollar):

  Prepare a bank reconciliation

Prepare a bank reconciliation. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries Deduct or Add will automatically appear if it is required

  What is the hedge efficiency for status quo hedge objective

The value of the hedge portfolio increases by $1,678 while the FRAs alone lost $21,000. what is the hedge efficiency for a status quo hedge objective.

  Find how item should be dealt with in financial statement

At the date of the published interim financial statements , 1 December 2018, Discuss how the item should be dealt with in the financial statements of Miko Ltd.

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!

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