outline a capital raising strategy from 3 different sources describing how and why each one is applicable to this specific company.
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You are the CFO of Millie Tech Ltd. outline a capital raising strategy from 3 different sources describing how and why each one is applicable to this specific company.
Company name: Millie Tech Ltd.
- Investment required: $250,000
- Equity Considered to be offered for this investment: 20%
- Product: Wearable device for animals that translates noises they make into simple, English language audible demands
- Idea: Innovative, Scalable, Targeted to growing segment
- Target Market: General consumers
- Prototype: ‘Beta’ phase launched
- Patents: Pending
- Management Team: Experienced, Motivated
- Strategic Relationships: development partnership Buffalo Bill & Precious Inc., a well established community dog training company
- Product Rollout or Sales: Patent is still pending
- Founder’s Investment to Date: $180,000
- Profit: $0
- Revenue: $50,000
- Management (Option Pool): $0
- Industry (Price/Sales) Ratio: 7.5X
- Estimated Average Value of Successful Startups in the region: $1,300,000
- Expected Sale Price on Exit: $21,000,000
- Investor’s Required ROI: 10X
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- You need to solve this exercise using Excel functions. (Please show work on excel) ABC Inc. plans to invest in new equipment. It will purchase the new equipment for $130,000 and sell its old version, which is fully depreciated, for $25,000. The new equipment has a 10-year useful life and will save $45,000 a year in expenses before tax. The opportunity cost of capital is 11%, and the firm’s tax rate is 21%. What is the NPV of this investment if ABC can benefit from bonus depreciation?Nyam-BiscoCookie Company wants to introduce a new product, Rolling In Dough Pies. The initial investment would be $180,000 and the cost of capital is 40%. Based upon the following cash flows and a comparative rate of 50%, use theIRRas your decision criterion to advise the company’s CFO on what to do. 1 $80,000 2 $95,000 3 $95,000 4 $110,000 5 $110,000 6 $110,000Pizza Girls, a national fast food franchise, has decided to professionalise its project evaluation. Previously, franchise locations had been selected on an ad hoc basis, with mixed results. The managing director has decided the net present value analysis is the best method. You have been given the task of determining the current cost of obtaining new finance and to calculate the cost of capital of Pizza Girls using the following information: Debt: 5,000 bonds with face value $1000 each and 8% coupon rate, paid annually, price quote of 115; the bonds have 20 years to maturity. Preferred stock: 100,000 shares of 5 percent preferred stock with a current price of $75, and a par value = $100 Common Stock: 1,500,000 shares of common stock, the beta of Pizza Girls is 1.5, Pizza Girls is expected to pay a dividend $0.60 next year, and the current price implicitly implies a dividend growth rate of 4% per year indefinitely. Market: the risk free rate is 4%,…
- The CEO of Grace Company, Nicole Grace is debating an investment. The investment is projected to earn $20,000 annually and will require the company to acquire $100,000 in assets. The following chart summarizes Grace’s decision: Before Investment After Investment Operating income 75,000 95,000 Average operating assets 300,000 400,000 Required: Assume Grace is evaluated based on growth in the company’s ROI. Compute the Return on Investment for the company before and after the investment. Would you recommend Grace make the investment? Assume Grace is evaluated based on growth in the company’s residual income. The company’s required rate of return is 15%. Compute the company’s residual income before and after the investment. Would you recommend Grace make the investment?The CEO of Grace Company, Nicole Grace is debating an investment. The investment is projected to earn $20,000 annually and will require the company to acquire $100,000 in assets. The following chart summarizes Grace’s decision: Before Investment After Investment Operating income 75,000 95,000 Average operating assets 300,000 400,000 Required: Assume Grace is evaluated based on growth in the company’s ROI. Compute the Return on Investment for the company before and after the investment. Would you recommend Grace make the investment? Assume Grace is evaluated based on growth in the company’s residual income. The company’s required rate of return is 15%. Compute the company’s residual income before and after the investment. Would you recommend Grace make the investment? Give at least one advantage and one disadvantage of using measures like ROI and residual income to evaluate company performance.The CFO of Carrie Electric Auto, Mary Scofield is debating an investment. The investment is projected to earn $100,000 annually and will require the company to acquire $600,000 in assets. The following chart summarizes Mary’s decision: Before Investment After Investment Sales $ 3,500,000 $ 4,100,000 Operating Income $ 600,000 $ 700,000 Average Operating Assets 3,000,000 3,600,000 Calculate: Assume Mary is evaluated based on growth in the company’s ROI. Compute the Return on Investment including the margin and turnover components for the company before and after the investment. Would you recommend Mary make the investment? Why (refer to margin and turnover in your answer)? Assume Mary is evaluated based on growth in the company’s residual income. The company’s required rate of return is 15%. Compute the company’s residual income before and after the investment. Would you recommend Mary make the investment? Give at least one…
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- Wonder Plc is considering two investment projects in another city and the estimated cash flows are as follows: Year Hotels$(m) Housing $(m) 0 Capital outlay (200) (250) Net cash flows 1 130 130 2 60 120 3 80 120 4 100 80 4 Residual value 20 40 The company’s cost of capital is 15%. (a) Assess the viability of these two projects using NPV and Payback period as the appraisal techniques and advise Wonder Plc’s Board of Directors accordingly. (b) Explain the importance of Payback period to the CEO.GX Corporation, a supplier of fitness equipment, is trying to decide whether to undertake any or all of the proposed projects in its investment opportunities schedule (IOS). The firm’s cost-ofcapital schedule and investment opportunities schedules follow. Cost-of-Capital ScheduleRange of new financing Source Weight After-tax cost0–Tk. 600,000 Debt 0.50 6.3% Preferred stock 0.10 12.5 Common stock 0.40 15.3 Tk.600,000– Tk.1,000,000 Debt 0.50 6.3% Preferred stock 0.10 12.5 Common stock 0.40 16.4 Tk.1,000,000 and above…Suppose that as a financial manager you have collected the following information on your company: Company Financial Information Financial Element Cost Before-tax cost of debt 6.5% Tax rate 40% Total long-term debt $400,000 Cost of preferred stock 7.25% Total preferred stock $50,000 Cost of common stock 11% Total common stock $500,000 Finance utilized $850,000 The firm is considering undertaking a project that costs $250,000 with an expected return of 13.5%. Address the following in your initial post: How much new capital is needed? Not having enough existing capital, how would you recommend going about obtaining the additional funds? Calculate and use the current WACC in your analysis. Discuss how the current WACC will change based on the type of financing chosen.
