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