FINANCE-10-7 VC Valuation and Deal Structuring Brazos Winery
Question # 00139757
Posted By:
Updated on: 11/24/2015 11:20 AM Due on: 12/24/2015
| PROBLEM 10-7 | ||||||||
| Given | Solution Legend | |||||||
| Target EBITDA sales multiples | 6.00 | 7.00 | = Value given in problem | |||||
| EBITDA (Year 5) | $ 1,200,000 | = Formula/Calculation/Analysis required | ||||||
| Funds raised | $ 500,000 | = Qualitative analysis or Short answer required | ||||||
| Cash (Year 5) | $ 300,000 | = Goal Seek or Solver cell | ||||||
| Interest bearing debt (year 5) | $ 2,000,000 | = Crystal Ball Input | ||||||
| Investment horizon for VC | $ 5 | years | = Crystal Ball Output | |||||
| Alternative Deal Structures | ||||||||
| Stated Rate of Return | Ownership % | |||||||
| Dividend rate on common | 0.00% | 60.00% | ||||||
| Coupon (convertible bonds) | 10.00% | 40.00% | ||||||
| Dividend rate (convertible pfd) | 10.00% | 45.00% | ||||||
| Solution | ||||||||
| a. Enterprise valuation | ||||||||
| 6 times multiple | 7 times multiple | |||||||
| EBITDA x EBITDA Multiple | ||||||||
| Plus: Cash | 300,000 | 300,000 | ||||||
| Enterprise value | ||||||||
| Less: Interest Bearing Debt | (2,000,000) | (2,000,000) | ||||||
| Equity Value in year 5 | ||||||||
| b. Analysis of alternative deal structures | ||||||||
| Common Stock | ||||||||
| $ Terminal cash flow (equity ownership) | ||||||||
| % Required Return by VC | ||||||||
| Convertible Bonds | ||||||||
| Annual interest | ||||||||
| $ Terminal cash flow (equity ownership) | ||||||||
| % Required Return by VC | ||||||||
| Preferred Stock | ||||||||
| Annual dividends | ||||||||
| $ Terminal cash flow (equity ownership) | ||||||||
| % Required Return by VC | ||||||||
| c. Analysis of pre- and post-money values of Brazos Winery's equity | ||||||||
| Common Stock | ||||||||
| Post-money value of the firm's equity | ||||||||
| Less: Invested Capital | (500,000.00) | |||||||
| Pre-money value | ||||||||
| Convertible Debt | ||||||||
| Post-money value of the firm's equity | ||||||||
| Less: Invested Capital | (500,000.00) | |||||||
| Pre-money value | ||||||||
| Convertible Preferred Stock | ||||||||
| Post-money value of the firm's equity | ||||||||
| Less: Invested Capital | (500,000.00) | |||||||
| Pre-money value | ||||||||
| d. | ||||||||
| e. | ||||||||
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Rating:
/5
Solution: FINANCE-10-7 VC Valuation and Deal Structuring Brazos Winery