| | PROBLEM 10-8 |
| | | | | | Solution Legend |
| | Given | | | | | = Value given in problem |
| | Balance sheet data | | | | | = Formula/Calculation/Analysis required |
| | | 2009 | 2014 | | | = Qualitative analysis or Short answer required |
| | Cash | | $ 300,000 | | | = Goal Seek or Solver cell |
| | Accounts payable | $ 100,000 | 200,000 | | | = Crystal Ball Input |
| | Short-term notes | 150,000 | 250,000 | | | = Crystal Ball Output |
| | Total short-term debt | $ 250,000 | $ 450,000 |
| | Sr. debt (10%) | 200,000 | 400,000 |
| | Sub debt (12% int rate, conv. into 10% stock, 5 yrs.) | 100,000 | 100,000 |
| | Equity | 200,000 | 800,000 |
| | Total debt and equity | $ 750,000 | $ 1,750,000 |
| | Additional financing needed | 250,000 | 250,000 |
| | Total debt and equity (after new funds are raised) | $ 1,000,000 | $ 2,000,000 |
| | Estimated EBITDA | $ 650,000 |
| | EBITDA Multiple | 6.00 |
| | Capital Costs |
| | Senior debt | 10.00% |
| | Sub-debt--Interest | 12.00% |
| | Sub-debt--Conversion % of equity | 10.00% |
| | Convertible Preferred Stock--Dividend yield | 8.00% |
| | Convertible Preferred Stock--Required rate of return | 45.00% |
| | Solution |
| | a. |
| | EBITDA | | $ 650,000 |
| | Multiple | | 6.00 |
| | EBITDA value |
| | Plus: Cash |
| | Enterprise value |
| | Less: Interest bearing debt (Short term notes plus senior debt) |
| | Equity value |
| | b. |
| | Sub-debt interest income |
| | Conversion value of the sub-debt |
| | Estimated IRR of Sub-debt (6 years) |
| | c. |
| | Convertible Preferred Stock Dividends (annual) |
| | Required equity conversion value to produce desired rate of return |
| | Required equity ownership percentage |
| | Final Deal Structure (Equity) | Equity Ownership % | Rate of Return |
| | Sub-Debt Holders |
| | Convertible Preferred Stockholders |
| | Dub Tarun |
| | d. |
| | e. |
| | Post-money value estimate (2009) |
| | Less: Preferred Stockholder investment | (250,000) |
| | Pre-money value estimate (2009) |
| | | |
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10-8.xlsx
