If you were employed by the venture capital fund, based on this information alone, would you recommend that the $1,500,000 investment be made? Yes, the projected return on equity in year three is greater than 30% No, the projected return on equity in year three is less than 30%
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- Question 3 Part A Ria recently started working at a financial institution. She has been advised of the importance of saving and the benefits of diversifying her investments. As such, she is considering investing in shares of Ohio Inc. Ohio Inc. just paid an annual dividend of $4.10 and has pledged to increase its dividend by 2.4% annually over the next five years. Thereafter it will maintain a constant 2.5% dividend growth rate annually. Ria’s required return is 15%. Required: Compute the price Ria should pay for a share of this stock today. Part B Securities issued by Corporations are classified as either debt or equity securities. What are bonds classified as? and What is the main difference between debt and equity?Rapid Home Testing (RHT) is a publicly traded all-equity financed firm. RHT's cost of capital is 11.85%. Its current earnings per share is $5.26. This EPS is expected to continue indefinitely. RHT has been paying out all its earnings as dividends It is now year 0, and RHT has just identified a new opportunity to expand its business. This new opportunity allows RHT to invest all of its earnings for 3 years (from year 1 to year 3), starting next year (year 1). Each dollar of new investment will yield a perpetual earnings of 16.04%, starting the following year. (E.g., investing $1 in year 1 will yield payoffs of $0.1604 from year 2 on.) After these 3 years, the competition catches up, driving the return on future investments down to 11.85%, the same as the cost of capital. As a result, RHT will stop making new investments and pay out all its earnings. All cash flows occur at the year end. Use the above information to answer questions (A) – (E). What is RHT's share price without the new…A high growth company raised $10,000,000.00 in capital from a venture capital firm in the early growth stage of funding.The pre-money valuation of the company at the time the capital was raised $20,000,000.00.The terms of the investment also had an annual dividend of 8% and an exit preference of 1.2X upon a liquidity event.Based on these facts please answer the following questions. After the closing of the capital funding what was the post money valuation and the venture capitalist’s percentage of ownership. Presuming the company sells for $100,000,000.00 what would the venture capitalist receive in proceeds? Presuming the company sells for $27,000,000.00 what would the owners (company) receive in proceeds. Presuming the company sells for $100,000,000.00 but also has $10,000,000.00 of debt on the balance sheet, what will the owners receive in proceeds? this is based on the facts provided. there is no more information to give.
- A high growth company raised $10,000,000.00 in capital from a venture capital firm in the early growth stage of funding. The pre-money valuation of the company at the time the capital was raised $20,000,000.00. The terms of the investment also had an annual dividend of 8% and an exit preference of 1.2X upon a liquidity event. Based on these facts please answer the following questions. After the closing of the capital funding what was the post money valuation and the venture capitalist’s percentage of ownership. Presuming the company sells for $100,000,000.00 what would the venture capitalist receive in proceeds? Presuming the company sells for $27,000,000.00 what would the owners (company) receive in proceeds. Presuming the company sells for $100,000,000.00 but also has $10,000,000.00 of debt on the balance sheet, what will the owners receive in proceeds?23-4: Suppose venture capital firm GSB partners raised $50 million of committed capital. Each year over the 12-year life of thefund, 1.5% of this committed capital will be used to pay GSB’smanagement fee. As is typical in the venture capital industry,GSB will only invest $41 million (committed capital less lifetimemanagement fees). At the end of 12 years, the investments madeby the fund are worth $550 million. GSB also charges 30% carriedinterest on the profits of the fund (net of management fees). b. Of course, as an investor or limited partner, you are more interested in your own IRR—that is, the IRR including all fees paid.Assuming that investors gave GSB partners the full $50 millionup front, what is the IRR for GSB’s limited partners (that is, theIRR net of all fees paid). How should that formula be understood to calculate the IRR ? I usually did it with Excel, but i cant get the same numberMaxwell Private equity investor is considering making an investment capital firm. The investor values the firm at $1.5 mn (present value of exit value) following $300,000 capital investment by the investor. Calculate the venture capital firm's pre- money valuation and investor's proportional ownership.
- Management Accounting and Finance 3B Case study 02 - Cost of capital Makhado Limited has a target capital structure of 60% equity and 40% debt. The before-tax cost of debt is 7.64% and the cost of new equity is 13%. The finance manager is currently considering a project with an expected return of 12% which will be financed from the issue of ordinary shares as all retained income is already budgeted for in more profitable projects. The company recently issued debentures and, as a result, the present capital is more heavily weighted towards debt. The company tax rate is 28%. 2.1 Calculate the weighted average cost of capital by making use of target capital structure.2.2 Briefly explain (giving reasons) whether the project under consideration should be accepted or not. 2.3 List the three steps used to calculate the weighted average cost of capital.2.4 Outline the fundamental assumptions of weighted average cost of capital.Expected Yearly Dividends ACGL (ARCH CAPITAL GROUP) 4% EVR (EVERCORE INC) 6% LEU (CENTRUS ENERGY CORP) 2% You plan to invest a total of $ 11,000 in the three funds shown above, with equal amounts invested in ACGL and LEU. You want to earn a total of $480 in yearly dividends. How much should you invest in each of the three funds? $_____in ACGL $_____in EVR $_____in LEUQuestion 4 Global Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. a) If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital? b) If Global raises capital using 30% debt, 5% preferred stock, and 65% common stock what is their cost of capital? c) Evaluate the two finance options and identify which one they should choose? Assess the advantages and disadvantages of your choice?
- Question 3 You have been asked to value Best Bank, a publicly traded bank that generated $100 million in net income in the most recent year on a regulatory capital base of $1billion (you can assume that this is also the book value of equity) with one billion shares outstanding. Over the next three years, you expect net income to grow 10% a year and regulatory capital (and book equity) to increase 5% a year. a) Estimate the FCFE each year for the next three years. b) At the end of year 3, you expect the bank to be in stable growth, growing 3% a year, while maintaining the return on equity it generated in year 3. If the cost of equity is 8%, estimate the value of equity at the end of year 3 c) What is the intrinsic value of the equity per share?D3) Finance Killer burgers capital structure consist of 30% debt 20% preferred stock and 50% common stock if killer raises new capital it's after-tax cost of debt will be 2.5% its cost of preferred stock will be 9% its cost of retained earnings will be 12.8% and it's cost of new common equity will be 13.8% killer must raise $180,000 if management expects the firm to generate $85,000 and retain earnings this year what is killers marginal cost of capital to raise the needed funds round your answer to two decimal places placesAbdullah has OMR 5000 to invest in a small business venture. His partner has promised to pay him back OMR 8200 in five years. What is the return earned on this investment? Select one: a. None of these b. 10.39 % c. 12.40 % d. 10.75 % e. 14.50 % Gross working capital refer to the Select one: a. Firms liabilities in total current assets of the enterprise b. Firms investment in total fixed assets of the enterprise c. Firms investment in total Equity of the enterprise d. Firms investment in total current assets of the enterprise e. None of the options
