Problem_Set__5

Problem_Set__5 - Rosita has 500,000 shares of stock...

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BusM 401 Problem Set #5 Financial Markets Instructions: Complete all questions. This problem set will not be graded, but you will still be required to understand all of the material contained in it. Short answers (“checkpoints”) are available for some questions on Blackboard so that you can check your answers. Full solutions will be available on Blackboard before the exam. (Some full answers are found in the back of Higgins; it’s best not to look at these until you have tried your best to answer the question.) 1. A venture capital firm wants to invest $5 million in Rosita Corp., a startup biotechnology firm. Rosita is expected to go public in 5 years. Earnings will be negligible until year 5, but are projected to be $8 million in year 5. Comparable biotech firms are trading at P/E ratios of 15 on average.
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Unformatted text preview: Rosita has 500,000 shares of stock outstanding. The VC firm will apply a discount rate of 50% to the investment. How many shares of stock should the VC firm be given for its $5 million investment? What should be the price per share? What are the implied pre-money and post-money valuations? 2. Do Higgins, Chapter 9, #10. 3. Magenta Corp. wants to raise $50 million in a seasoned equity offering, net of all fees. Magenta stock currently sells for $10 per share. The underwriters will require a fee of $0.50 per share, and indicate that the issue must be underpriced by 5%. In addition to the underwriters fee, the firm will incur $1,000,000 in legal, administrative, and other costs. How many shares must Magenta sell? 4. Do Higgins, Chapter 5, #5. 2...
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This note was uploaded on 02/22/2012 for the course BUS M 401 taught by Professor Toddmitton during the Winter '10 term at BYU.

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Problem_Set__5 - Rosita has 500,000 shares of stock...

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