alculations] The Biometrix Corporation has been in operation for one full year 8. 12016). Financial statements follow. Biometrix's management is interested in determining the value of the venture as of the end of 2016. Sales are expected to grow at a 20 percent annual rate for each of the next three years (2017 2018, and 2019) before settling down to a long-run growth rate of 7 percent annually. The cost of goods sold is expected to vary with sales. Operating expenses are expected to grow at 75 percent of the sales growth rate (i.e., be semi-fixed) for the next three years before again growing at the same rate as sales beginning in 2020. Individual asset accounts are expected to grow at the same rate as sales. Depreciation can be forecasted either as a percentage of sales or as a percentage of net fixed assets (because net fixed assets are expected to grow at the same rate as sales growth). Accounts payable and accrued liabilities are also expected to grow with sales. Biometrix's management is interested in determining the equity value of the venture as of the end of 2016. Because Biometrix is in its startup life cycle stage, management and venture investors believe that 40 percent is an appropriate discount rate until the firm reaches its long-run or perpetuity growth rate. At that time it will have survived and will become a more typical firm with an estimated cost of equity capital of 20 percent. One million shares of common stock are outstanding. A. Project the financial statements for the next four years (2017-2020). B. Calculate the valuation cash flow for each year. C Datarmine p:
alculations] The Biometrix Corporation has been in operation for one full year 8. 12016). Financial statements follow. Biometrix's management is interested in determining the value of the venture as of the end of 2016. Sales are expected to grow at a 20 percent annual rate for each of the next three years (2017 2018, and 2019) before settling down to a long-run growth rate of 7 percent annually. The cost of goods sold is expected to vary with sales. Operating expenses are expected to grow at 75 percent of the sales growth rate (i.e., be semi-fixed) for the next three years before again growing at the same rate as sales beginning in 2020. Individual asset accounts are expected to grow at the same rate as sales. Depreciation can be forecasted either as a percentage of sales or as a percentage of net fixed assets (because net fixed assets are expected to grow at the same rate as sales growth). Accounts payable and accrued liabilities are also expected to grow with sales. Biometrix's management is interested in determining the equity value of the venture as of the end of 2016. Because Biometrix is in its startup life cycle stage, management and venture investors believe that 40 percent is an appropriate discount rate until the firm reaches its long-run or perpetuity growth rate. At that time it will have survived and will become a more typical firm with an estimated cost of equity capital of 20 percent. One million shares of common stock are outstanding. A. Project the financial statements for the next four years (2017-2020). B. Calculate the valuation cash flow for each year. C Datarmine p:
Chapter10: Valuing Early-stage Ventures
Section: Chapter Questions
Problem 8SEP
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![VOLLI
SPREADSHEET VALUATION PROBLEM
S (Venture Present Value Calculations] The Biometrix Corporation has been in operation for one full year
12016). Financial statements follow. Biometrix's management is interested in determining the value of the venture
as of the end of 2016. Sales are expected to grow at a 20 percent annual rate for each of the next three years (2017,
2018, and 2019) before settling down to a long-run growth rate of 7 percent annually. The cost of goods
sold is expected to vary with sales. Operating expenses are expected to grow at 75 percent of the sales growth
rate (ie., be semi-fixed) for the next three years before again growing at the same rate as sales beginning in 2020.
Individual asset accounts are expected to grow at the same rate as sales, Depreciation can be forecasted either as a
percentage of sales or as a percentage of net fixed assets (because net fixed assets are expected to grow at the same
rate as sales growth). Accounts payable and accrued liabilities are also expected to grow with sales.
Biometrix's management is interested in determining the equity value of the venture as of the end of
2016. Because Biometrix is in its startup life cycle stage, management and venture investors believe that
40 percent is an appropriate discount rate until the firm reaches its long-run or perpetuity growth rate.
At that time it will have survived and will become a more typical firm with an estimated cost of equity
capital of 20 percent. One million shares of common stock are outstanding.
A. Project the financial statements for the next four years (2017-2020).
B. Calculate the valuation cash flow for each year.
C. Determine Biometrix's equity value at the end of 2016.
BIOMETRIX CORPORATION
INCOME STATEMENT FOR DECEMBER 31, 2016
(THOUSANDS OF DOLLARS)
Sales
$20,000
-10,000
10,000
Cost of goods sold
Gross profit
Operating expenses
Depreciation
Earnings before interest and taxes
Interest
Eamings before taxes
Taxes (40%)
-7,500
-400
2,100
-100
2,000
-800
$ 1,200
Net incorne
BALANCE SHEET AS OF DECEMBER 31, 2016 (THOUSANDS OF DOLLARS)
Cash
Accounts receivable
Inventories
Total current assets
Gross fixed assets
$ 1,000
2,000
2,000
5,000
5,400
Accounts payable
$ 1.500
1,000
$ 1,000
3,500
Accrued liabilities
Bank loan
Total current liabilities
Common stock
Retained earnings
Total equity
Total liabilities and equity
5,300
400
$ 1,200
Accurmulated depreciation
Net fixed assets
$ 5.000
6.500
%2410.000
$10,000
Total assets](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa858c91f-c9f3-43fa-bb58-b04d3071443e%2F03b92807-c107-433a-89b2-f6ef93a6e836%2Fa4sv9vuj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:VOLLI
SPREADSHEET VALUATION PROBLEM
S (Venture Present Value Calculations] The Biometrix Corporation has been in operation for one full year
12016). Financial statements follow. Biometrix's management is interested in determining the value of the venture
as of the end of 2016. Sales are expected to grow at a 20 percent annual rate for each of the next three years (2017,
2018, and 2019) before settling down to a long-run growth rate of 7 percent annually. The cost of goods
sold is expected to vary with sales. Operating expenses are expected to grow at 75 percent of the sales growth
rate (ie., be semi-fixed) for the next three years before again growing at the same rate as sales beginning in 2020.
Individual asset accounts are expected to grow at the same rate as sales, Depreciation can be forecasted either as a
percentage of sales or as a percentage of net fixed assets (because net fixed assets are expected to grow at the same
rate as sales growth). Accounts payable and accrued liabilities are also expected to grow with sales.
Biometrix's management is interested in determining the equity value of the venture as of the end of
2016. Because Biometrix is in its startup life cycle stage, management and venture investors believe that
40 percent is an appropriate discount rate until the firm reaches its long-run or perpetuity growth rate.
At that time it will have survived and will become a more typical firm with an estimated cost of equity
capital of 20 percent. One million shares of common stock are outstanding.
A. Project the financial statements for the next four years (2017-2020).
B. Calculate the valuation cash flow for each year.
C. Determine Biometrix's equity value at the end of 2016.
BIOMETRIX CORPORATION
INCOME STATEMENT FOR DECEMBER 31, 2016
(THOUSANDS OF DOLLARS)
Sales
$20,000
-10,000
10,000
Cost of goods sold
Gross profit
Operating expenses
Depreciation
Earnings before interest and taxes
Interest
Eamings before taxes
Taxes (40%)
-7,500
-400
2,100
-100
2,000
-800
$ 1,200
Net incorne
BALANCE SHEET AS OF DECEMBER 31, 2016 (THOUSANDS OF DOLLARS)
Cash
Accounts receivable
Inventories
Total current assets
Gross fixed assets
$ 1,000
2,000
2,000
5,000
5,400
Accounts payable
$ 1.500
1,000
$ 1,000
3,500
Accrued liabilities
Bank loan
Total current liabilities
Common stock
Retained earnings
Total equity
Total liabilities and equity
5,300
400
$ 1,200
Accurmulated depreciation
Net fixed assets
$ 5.000
6.500
%2410.000
$10,000
Total assets
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