finance
tn2019
Notes6_RaisingCapital_solutions.xlsxProb 1
| Notes 6 Questions | ||
| #1 | ||
| Input Area: | ||
| Shares outstanding | 50,000 | |
| Share price | $ 40 | |
| New shares issued | 9,000 | |
| Issue price | $ 40 | |
| Issue price | $ 20 | |
| Issue price | $ 10 | |
| Output Area: | ||
| Market value of company | $ 2,000,000 | |
| At an issue price of | $ 40 | |
| the new share price is | $ 40.00 | |
| At an issue price of | $ 20.00 | |
| the new share price is | $ 36.95 | |
| At an issue price of | $ 10.00 | |
| the new share price is | $ 35.42 | |
Prob 2
| #2 | ||
| a) | Input Area: | |
| Funds needed | $ 55,000,000 | |
| Offer price | $ 32 | |
| Spread | 7% | |
| Output Area: | ||
| Proceeds from sale | $ 59,139,785 | |
| Number of shares offered | 1,848,118 | |
| b) | Input Area: | |
| Funds needed | $ 55,000,000 | |
| Offer price | $ 32 | |
| Spread | 7% | |
| Administrative expense | $ 1,900,000 | |
| Output Area: | ||
| Proceeds from sale | 61,182,796 | |
| Number of shares offered | 1,911,962 | |
Prob 3
| #3 | |||||||
| a) | After-the-Money Valuation = $40 mil/.40 = | $100 mil | |||||
| b) First, find DCF value of company using the VGO model: | |||||||
| rE | 20% | Yr (t) | NIt | It | NPVt | ||
| ROE | 50% | 0 | 40 | ||||
| 1 | 20 | 20 | 30 | ||||
| 2 | 30 | 30 | 45 | ||||
| V | $156.25 | ||||||
| Then, calculate VC's NPV as .4(V) - I0: | |||||||
| NPVVC = .4(156.25) - 40 = | $22.50 | ||||||
| c) In an efficient market, VC would receive 40/(156.25) = | 25.60% | ownership share for $40 million investment | |||||
| However, a lack of perfect competition among investors may necessitate accepting a less advantageous bargain |
Note: It and NPVt are interpreted here on a total basis, rather than a per-share basis.
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