You are the owner of a graphic design firm that has a number of high-end clients. Your business started up last year and is financed by three angel investors. Your initial pro forma showed that you were going to be very profitable and return a maximum of $5 million to the angel investors within five-to-six years. The angel investors expect a return of 14 percent on their investment and originally invested $1 million in your startup. At this rate, the net present value (discounted cash flow of the future returns) was $3.8 million (Present Value of future discounted cash flows). Q2. After the first year, “so far so good,” you have signed on some new clients that show great potential and met the targets of your scorecard. That said, it looks like you will have to expand staff and buy some high-end equipment to satisfy the needs of the new clients. You estimate you will need an additional $2.2 million from investors to carry you through the next two years. With the new investments and competitive pressures, you are estimating a new cumulative, discounted cash flow return to investors for the five-year horizon of $4 million (this would represent a “node” on the Innovation Accounting decision tree. Is this still a good investment for the investors? Explain and articulate any assumptions.
You are the owner of a graphic design firm that has a number of high-end clients. Your business started up last year and is financed by three angel investors. Your initial pro forma showed that you were going to be very profitable and return a maximum of $5 million to the angel investors within five-to-six years. The angel investors expect a return of 14 percent on their investment and originally invested $1 million in your startup. At this rate, the net present value (discounted cash flow of the future returns) was $3.8 million (Present Value of future discounted cash flows). Q2. After the first year, “so far so good,” you have signed on some new clients that show great potential and met the targets of your scorecard. That said, it looks like you will have to expand staff and buy some high-end equipment to satisfy the needs of the new clients. You estimate you will need an additional $2.2 million from investors to carry you through the next two years. With the new investments and competitive pressures, you are estimating a new cumulative, discounted cash flow return to investors for the five-year horizon of $4 million (this would represent a “node” on the Innovation Accounting decision tree. Is this still a good investment for the investors? Explain and articulate any assumptions.
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 1MC: Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant...
Related questions
Question
You are the owner of a graphic design firm that has a number of high-end clients. Your business started up last year and is financed by three angel investors. Your initial pro forma showed that you were going to be very profitable and return a maximum of $5 million to the angel investors within five-to-six years. The angel investors expect a return of 14 percent on their investment and originally invested $1 million in your startup. At this rate, the net present value (discounted cash flow of the future returns) was $3.8 million (Present Value of future discounted cash flows).
Q2. After the first year, “so far so good,” you have signed on some new clients that show great potential and met the targets of your scorecard. That said, it looks like you will have to expand staff and buy some high-end equipment to satisfy the needs of the new clients. You estimate you will need an additional $2.2 million from investors to carry you through the next two years. With the new investments and competitive pressures, you are estimating a new cumulative, discounted cash flow return to investors for the five-year horizon of $4 million (this would represent a “node” on the Innovation Accounting decision tree. Is this still a good investment for the investors? Explain and articulate any assumptions.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you