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Essay / Research Paper Abstract
This 10 page paper looks at a case supplied by the student were a company looking to raise capital are negotiating with a potential venture capital investor. The paper looks at the way the company could be valued in the future to assess how much a set investment should buy and given a set issue of shares how many shares should be bought and the price of those where in order to achieve either a 50% or 30% return. The paper then considers several scenarios that may alter the initial calculations.
Page Count:
10 pages (~225 words per page)
File: TS14_TEventcase1.rtf
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Unformatted sample text from the term paper:
of the company that would need to be purchased for a set amount. If we look at the need for a return of 50% on an investment of $5 million
then we can carry out the following calculation assuming that the shares purchased in year 1 are sold in year five to realise the return and that industry P/E rate
is 20 with the company expected to be in line with that ratio. Table 1 Share of company to be bought if 50% return required 50% required
return P/E ratio (a) 20 Net income at 5 years (b) 5,000,000 Total projected capitalisation at year 5 (c) (a x b) 100,000,000 Initial investment (d) 5,000,000 Required return rate
(e) 50% Requited return (f) (d x e) 2,500,000 Total value of purchased shares at 5 years (g) (f + d) 7,500,000 Percentage of the company that would need to
be purchased (h) ((g/c) x 100) 7.50% If we look at this we can see that $5,000,000 would buy 7.5% of the company. If the return at five years is
30% this would give the following Table 2 Share of company to be bought if 30% return is required 30% required return P/E ratio (a) 20 Net income at
5 years (b) 5,000,000 Total projected capitalisation at year 5 (c) (a x b) 100,000,000 Initial investment (d) 5,000,000 Required return rate (e) 30% Requited return (f) (d x e)
1,500,000 Total value of purchased shares at 5 years (g) (f + d) 6,500,000 Percentage of the company that would need to be purchased (h) ((g/c) x 100) 6.50% With
the knowledge of the share of the company that was needed we can then look at the price that should be paid per share. b). If it is assumed
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