70.2K

Verified Solution

Link Copied!

1. One of your early assignments at your new place of employment at an equity crowdfunding platform is to assess the value of companies that are seeking listing on the platform. A new start-up presents itself with the following cash flow projections. You consider using NPV and option pricing methods to value this company. All amounts are in thousands. Year o Year 1 Year 2 Year 3 Year 4 Year 5 Cash flow except Capex 0 10 15 15 40 Capital Expenditures |-130 0 0 O o 0 Total Cash Flow |-130 0 0 15 15 40 WACC = 25%, terminal growth rate = 3%. Initial investment: $30 thousand for R&D equipment and personnel. The $100 thousand expenditure on the plant could be undertaken any time in the first two years (whenever the project would be undertaken, the present value of the plant construction expenditures would total $100 thousand in today's dollars). The entrepreneur pursues the $100 thousand expenditure only if the first stage investment is successful. The Valuation decision now based on a $30 thousand investment bundled with a two-year European call option and priced using the Black- Scholes model. Time to expiration (T-t) = 2 years. Risk-free rate (rs) = 7%. Exercise price (x) = present value of the investment to build the plant = $100 thousand. Stock Price (s) = discounted cash flows generated by the underlying assets associated with the expansion opportunity can be computer for Year O using a discount rate of 25% and a terminal growth rate of 3% per year. The standard deviation (0) based on comparables is 0.6. Do you think listing this company on your equity crowdfunding platform would be good for its reputation and long term success of the start-up, and for the platform? Why? or why not? 2. Your start-up is considering raising money through equity crowdfunding. The goal is to raise $400,000 and you need to decide on what share of the company you should sell. You project the company will have Net Income in Year 5 of $1.8 million. Similar profitable Internet ventures listed on stock exchanges are trading at an average Price-Earnings Ratio of 14. The company currently has 100,000 shares outstanding. In view of the risk of failures in this industry sector, you promote that in the event of a successful outcome, investors should expect to receive a 30% rate of return. What share of the company should you offer for sale, and how many shares would that offering comprise in an equity crowdfunding campaign? What would be the appropriate price per share? Would your answer change if you expected a second equity crowdfunding round with another 10% of equity sold? And can you identify possible problems with using the average Price-Earnings Ratios of current publicly trading Internet Companies for the purposes of valuing your start-up? 3. What are the benefits and costs associated with offering a higher equity share to the crowd in equity crowdfunding cases? What is a typical equity share that is offered in crowdfunding? 1. One of your early assignments at your new place of employment at an equity crowdfunding platform is to assess the value of companies that are seeking listing on the platform. A new start-up presents itself with the following cash flow projections. You consider using NPV and option pricing methods to value this company. All amounts are in thousands. Year o Year 1 Year 2 Year 3 Year 4 Year 5 Cash flow except Capex 0 10 15 15 40 Capital Expenditures |-130 0 0 O o 0 Total Cash Flow |-130 0 0 15 15 40 WACC = 25%, terminal growth rate = 3%. Initial investment: $30 thousand for R&D equipment and personnel. The $100 thousand expenditure on the plant could be undertaken any time in the first two years (whenever the project would be undertaken, the present value of the plant construction expenditures would total $100 thousand in today's dollars). The entrepreneur pursues the $100 thousand expenditure only if the first stage investment is successful. The Valuation decision now based on a $30 thousand investment bundled with a two-year European call option and priced using the Black- Scholes model. Time to expiration (T-t) = 2 years. Risk-free rate (rs) = 7%. Exercise price (x) = present value of the investment to build the plant = $100 thousand. Stock Price (s) = discounted cash flows generated by the underlying assets associated with the expansion opportunity can be computer for Year O using a discount rate of 25% and a terminal growth rate of 3% per year. The standard deviation (0) based on comparables is 0.6. Do you think listing this company on your equity crowdfunding platform would be good for its reputation and long term success of the start-up, and for the platform? Why? or why not? 2. Your start-up is considering raising money through equity crowdfunding. The goal is to raise $400,000 and you need to decide on what share of the company you should sell. You project the company will have Net Income in Year 5 of $1.8 million. Similar profitable Internet ventures listed on stock exchanges are trading at an average Price-Earnings Ratio of 14. The company currently has 100,000 shares outstanding. In view of the risk of failures in this industry sector, you promote that in the event of a successful outcome, investors should expect to receive a 30% rate of return. What share of the company should you offer for sale, and how many shares would that offering comprise in an equity crowdfunding campaign? What would be the appropriate price per share? Would your answer change if you expected a second equity crowdfunding round with another 10% of equity sold? And can you identify possible problems with using the average Price-Earnings Ratios of current publicly trading Internet Companies for the purposes of valuing your start-up? 3. What are the benefits and costs associated with offering a higher equity share to the crowd in equity crowdfunding cases? What is a typical equity share that is offered in crowdfunding

Answer & Explanation Solved by verified expert

See Answer