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Chapter 13 Solutions - Problem 13-1a Valuation Template...

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Problem 13-1a Income Statement Information Year 0 1 2 3 4 Sales $10,000,000 Cash Flow Information External Funds Required to Support Operations $1,000,000 $1,500,000 $2,000,000 $3,000,000 $0 Equity Capital Raised $6,834,143 Beginning Cash Balance $6,834,143 $6,125,850 $4,857,143 $3,000,000 ($0) Uses of Cash $1,000,000 $1,500,000 $2,000,000 $3,000,000 $0 Cash Invested in Marketable Securities $5,834,143 $4,625,850 $2,857,143 ($0) ($0) Return on Invested Cash $291,707 $231,293 $142,857 ($0) ($0) Ending Cash Balance $6,125,850 $4,857,143 $3,000,000 ($0) ($0) Investor Valuation and Ownership Allocation Investor Hurdle Rate 75.00% 60.00% 45.00% 30.00% 30.00% Continuing Value Earnings Multiplier 6 Continuing Value of Venture $60,000,000 Required Future Value of Investment $64,096,786 Ownership Share Required 106.83% Valuation Template Single-Stage Investment - Venture Capital Method
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Problem 13-1b Income Statement Information Year 0 1 2 3 4 Sales $10,000,000 Cash Flow Information External Funds Required to Support Operations $1,000,000 $1,500,000 $2,000,000 $3,000,000 $0 Equity Capital Raised $1,000,000 $1,500,000 $2,000,000 $3,000,000 Beginning Cash Balance $1,000,000 $1,500,000 $2,000,000 $3,000,000 $0 Uses of Cash $1,000,000 $1,500,000 $2,000,000 $3,000,000 $0 Cash Invested in Marketable Securities $0 $0 $0 $0 $0 Return on Invested Cash $0 $0 $0 $0 $0 Ending Cash Balance $0 $0 $0 $0 $0 Investor Valuation and Ownership Allocation Investor Hurdle Rate 75.00% 60.00% 45.00% 30.00% 30.00% Continuing Value Earnings Multiplier 6 Continuing Value of Venture $60,000,000 Investor's Required Future Value and Equity Share Required Beginning Share Required Ending Share Value Fourth Stage 6.50% 6.50% $3,900,000 Third Stage 7.50% 7.01% $4,205,000 Second Stage 11.84% 10.24% $6,144,000 First Stage 20.50% 15.63% $9,378,906 Ownership Required 39.38% $23,627,906 Valuation Template Multi-Stage Investment - Venture Capital Method
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Problem 13-1c Spreadsheet is modified to evaluate the effects of changing expectations about value. Income Statement Information Year 0 1 2 3 4 Sales $10,000,000 Cash Flow Information External Funds Required to Support Operations $1,000,000 $1,500,000 $2,000,000 $3,000,000 $0 Equity Capital Raised $1,000,000 $1,500,000 $2,000,000 $3,000,000 Beginning Cash Balance $1,000,000 $1,500,000 $2,000,000 $3,000,000 $0 Uses of Cash $1,000,000 $1,500,000 $2,000,000 $3,000,000 $0 Cash Invested in Marketable Securities $0 $0 $0 $0 $0 Return on Invested Cash $0 $0 $0 $0 $0 Ending Cash Balance $0 $0 $0 $0 $0 Investor Valuation and Ownership Allocation Investor Hurdle Rate 75.00% 60.00% 45.00% 30.00% 30.00% Continuing Value Earnings Multiplier 6 6 6 6 Continuing Value Est. at time of investment $60,000,000 $54,000,000 $45,000,000 $36,000,000 Investor's Required Future Value and Equity Share Required Beginning Share Required Ending Share Value Ending value of claim Fourth Stage 10.83% $3,900,000 $3,900,000 Third Stage 9.34% $4,205,000 $3,364,000 Second Stage 11.38% $6,144,000 $4,096,000 First Stage 15.63% $9,378,906 $5,627,344 Ownership Required 65.63% $23,627,906 Valuation Template Multi-Stage Investment - Venture Capital Method
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Problem 13-2a Market Information Risk-free Rate of Interest 21.55% Market Rate or Return 51.81% Market Risk Premium 30.26% Market Standard Deviation 40.00% Correlation Between Venture and Market 0.25 Venture Cash Flows Time 0 1 2 3 4 5 Success Scenario ($7,234) $60,000 Failure Scenario ($7,234) $12,000 Expected Cash Flow ($7,234) $36,000 Standard Deviation $0 $24,000 Beta of Venture 0.58 Investor Interest and Value Share of Investment 94.47% Share of Equity 26.41% Cash Flows Success Scenario ($6,834) $15,846 Failure Scenario ($6,834) $3,169 Expected Cash Flow ($6,834) $9,508 Standard Deviation $0 $6,338 Value of Interest $6,836 NPV of Interest in Venture $2 Entrepreneur Interest and Value Share of Investment 5.53% Share of Equity 73.59% Entrepreneur's Wealth $1,500 Fraction of Wealth Invested in Venture 27% Cash Flows of Investment in Venture Success Scenario ($400) $44,154 Failure Scenario ($400) $8,831
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