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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?

100 ; about 25%

300 ; about 15%

500 ; about 10%

700 ; about 75%
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Answer #1

Solution & bet us and Value assume that grows forever 9 the firm the firm survives than the will be is VF = $1050 (:23 - 04)

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