Homework Answers
General guidelines are that the general partners get 2% for day to day management in terms of fees and the VC gets a minimum 20% of the profits.
So the correct answer is the second option.
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In a typical deal, the venture capitalist will receive percent of the equity of financed firm....
The current value of a firm is 838,300 dollars and it is 100% equity financed. The...
The current value of a firm is 838,300 dollars and it is 100% equity financed. The firm is considering restructuring so that it is 80% debt financed. If the firm's corporate tax rate is 0.8, the typical personal tax rate of an investor in the firm's stock is 0.2, and the typical tax rate for an investor in the firm's debt is 0.2 what will be the new value of the firm under the MM theory with corporate taxes but...
Question 27: [Venture Capital Valuation Method] A venture capitalist firm wants to invest $1.5 million in...
Question 27: [Venture Capital Valuation Method] A venture capitalist firm wants to invest $1.5 million in your NYDeli dot.com venture that you started six months ago. You do not expect to make a profit until year four when your net income is expected to be $3 million. The common stock of BioSystems, a “comparable” firm, currently trades in the over-the-counter market at $30 per share. BioSystems’ net income for the most recent year was $300,000 and the firm has 150,000...
An entrepreneur first started his business with $100,000. Later, a venture capitalist (VC) agrees to invest...
An entrepreneur first started his business with $100,000. Later, a venture capitalist (VC) agrees to invest $300,000 to sustain the growth. In return, this VC will take up a 50% equity position in the firm. How much is this business worth now? (Show your calculations)
You are analyzing a firm that is financed with 65 percent debt and 35 percent equity....
You are analyzing a firm that is financed with 65 percent debt and 35 percent equity. The current cost of debt financing is 10 percent, but due to a recent downgrade by the rating agencies, the firm's cost of debt is expected to increase to 12 percent immediately. How will this increase change the firm's weighted average cost of capital if you ignore taxes? (Round answer to 2 decimal places, eg. 15.25%.) Ignoring taxes firm's weighted average cost of capital...
Firm X and Firm Y are both 100% equity-financed. Firm X wants to acquire Firm Y...
Firm X and Firm Y are both 100% equity-financed. Firm X wants to acquire Firm Y for $165,000 in the form of either cash or stock. The synergy value of the deal is $25,000. You are given the following additional information: What is the merger premium expressed as a percent of Firm Y's stock price? What is the NPV of the acquisition if cash is used? What is the price per share of the post-merger firm following a cash acquisition?...
Q1. Firm XYZ is currently financed entirely with equity. The market value of the firm's assets...
Q1. Firm XYZ is currently financed entirely with equity. The market value of the firm's assets and equity is ?? = ?? = 500, and the expected return on the firm's assets and equity is ?? = ?? = 12.5 percent. Suppose the firm issues debt with a value of ? = 200, and uses the proceeds to retire equity. The market value of the firm remains the same, ?? = ?? + ? = 500. If the expected return...
If a firm has a cost of equity of 15 percent, and the firm is 100...
If a firm has a cost of equity of 15 percent, and the firm is 100 percent equity financed. The firm is contemplating a $150 million expansion of its existing operations, funded by selling new stock. Flotation costs will run 10 percent of the amount issued. When flotation costs are considered, what is the cost of expansion? Multiple Choice A. $135 million B. $150 million C. $166.67 million D. $175 million E. $185.67 million
Problems 5 and 6 are connected. 5) As a venture capitalist, you are considering investing in...
Problems 5 and 6 are connected. 5) As a venture capitalist, you are considering investing in a startup company called Xevo. Xevo, like most startups, is not expected to generate profits in the near future. After careful analysis, you and your colleagues determine that Xevo will start generating profits of $400,000 at the end of the 6th year. Thereafter, it will grow at 11% per year forever. Using a discount rate of 8%, and assumingyou will be acquiring 50% of...
.As a venture capitalist, you are considering investing in a startup company called Xevo. Xevo, like...
.As a venture capitalist, you are considering investing in a startup company called Xevo. Xevo, like most startups, is not expected to generate profits in the near future. After careful analysis, you and your colleagues determine that Xevo will start generating profits of $400,000 at the end of the 6 th year. Thereafter, it will grow at 11% per year forever. Using a discount rate of 18%, and assuming you will be acquiring 50% of the company, what is the...
Firm U is all-equity financed, while Firm L is both debt- and equity-financed. The following table...
Firm U is all-equity financed, while Firm L is both debt- and equity-financed. The following table gives some relevant data on the two firms: Firm U Firm L Annual expected future cash flow $5 M $5 M Cost of equity (rE) 15% 16% Market value of debt (D) 0 $15 M Cost of debt (rD) N/A 12% Market value of equity (E) ? ? Market value of the firm (V) ? ? Weighted average cost of capital (WACC) ? ?...
You are analyzing a firm that is financed with 65 percent debt and 35 percent equity. The current cost of debt financing is 10 percent, but due to a recent downgrade by the rating agencies, the firm's cost of debt is expected to increase to 12 percent immediately. How will this increase change the firm's weighted average cost of capital if you ignore taxes? (Round answer to 2 decimal places, eg. 15.25%.) Ignoring taxes firm's weighted average cost of capital...
Problems 5 and 6 are connected. 5) As a venture capitalist, you are considering investing in a startup company called Xevo. Xevo, like most startups, is not expected to generate profits in the near future. After careful analysis, you and your colleagues determine that Xevo will start generating profits of $400,000 at the end of the 6th year. Thereafter, it will grow at 11% per year forever. Using a discount rate of 8%, and assumingyou will be acquiring 50% of...
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