Ginny is actively pursuing another business venture as a ticket scalper. She estimates that for a $2 million investment...
Ginny is actively pursuing another business venture as a ticket scalper. She estimates that for a $2 million investment in inventory she can resell her tickets for $6 million over the next two years (cash flows realized in exactly two years). Assume the same 6% interest rate.
- What is the NPV of the Ticket Brokering venture?
- What is the new value of Ginny’s Corporation?
- Suppose Ginny does not have the $2 million to start the new venture. Instead, she wants to raise equity capital by issuing 100,000 shares. What price will new investors be willing to pay?
Homework Answers
Investment at Year 0 = $ 2 Million
Realisation = $ 6 Million - Cash flow in exactly 2 years
Rate = 6%
(i); - Net Present Value= Present Value of cash inflow - Present Value of cash outflow
= PV of 6 Million ( 6%, 2 years) - 2 million
= (5.144 - 2)*million
= 3.144 Million
(ii) : Value of Ginny Corporation : Investment as on today + Net Present Value of the investment
= $ 2 Million + $ 3.144 Million = $ 5.144 Million
(iii) : Price new investor willing to Pay
Valuation of Company = 5.144 Million
No. of share to be issue = 100,000 shares
Price new investor willing to pay = 5.144 Million / 100,000 =$ 51.44
Max. Price investor willing to pay = $ 51.44
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