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You are an analyst for a venture capital fund. The firm you are valuing is expected...

You are an analyst for a venture capital fund. The firm you are valuing is expected to have free cash flows next year of $1,000, and they are expected to grow at 4% every year forever (if they survive). Further, using CAPM and accounting for the fees that your VC charges, the cost of capital for the firm is 23%.

A rival VC fund put in a bid for the firm. They are offering to invest $100 for 16.67% of the firm. What is the implied pre-money valuation? What is the implied probability of survival for the firm?

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Answer #1

Assuming the firm survives and grows forever, the firm value is Firm value 1000/(-23-.04) Firm value 5263.16 Now, 100/(X+100)

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