It is the beginning of 2017, and the management team has $5 million of their own...
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It is the beginning of 2017, and the management team has $5 million of their own capital, including their share of the sales price, available to purchase all of the venture's existing equity capital. The intent is to retire all of the old stock and issue 2 million shares of common stock in the "new" venture to the management team. LBO financiers will put up $20 million in 8 percent, 5-year subordinated debt funds plus 1.9 million warrants that can be converted into 1.9 million shares of common stock. A bank will also offer a $10 million, 14 percent interest rate, 4-year fully amortized loan. To make the deal work, Brian Motley was asked to provide seller financing in the form of a below market 10 percent, 5-year, seller's note. The amount of the note was to be for the difference between the $45 million selling price and the amount of funds raised from management, the LBO financiers, and the bank. In exchange for the seller financing by Brian Motley, the existing venture capitalists agreed to reduce their ownership rights from 43 percent to 40 percent. The management team also lowered their claim on the existing venture from 7 percent to 5 percent. Thus, as the result of agreeing to provide seller financing, Brian's percentage ownership of the $45 million selling price was 55 percent. Brian estimated that the interest rate being paid on similar risk subordinated seller loans was currently at 16 percent. A. What will be the dollar amount of seller financing that Brian Motley will need to provide to complete the financing of the $45 million selling price? B. How much cash will be available to distribute to the existing owners of the MiniDiscs Corporation? What will be the dollar breakdown for Brian Motley, the management team, and the venture capitalists? C. What compound rate of return did Motley earn on his $1 million end of 2011 investment? D. What compound rate of return did the venture capitalists earn on their $7 million investment at the end of 2012? E. After five years of operating as a private venture owing to the LBO, assume that the common equity in the MiniDiscs Corporation could be sold for $60 million at the end of 2021. What compound rate of return would the management team earn on its $5 million investment? F. Assume that when MiniDiscs is sold at the end of 2021 for $60 million that the LBO financiers will have their debt retired and will sell their share of interest in the venture. What compound rate of return would the LBO financiers receive? It is the beginning of 2017, and the management team has $5 million of their own capital, including their share of the sales price, available to purchase all of the venture's existing equity capital. The intent is to retire all of the old stock and issue 2 million shares of common stock in the "new" venture to the management team. LBO financiers will put up $20 million in 8 percent, 5-year subordinated debt funds plus 1.9 million warrants that can be converted into 1.9 million shares of common stock. A bank will also offer a $10 million, 14 percent interest rate, 4-year fully amortized loan. To make the deal work, Brian Motley was asked to provide seller financing in the form of a below market 10 percent, 5-year, seller's note. The amount of the note was to be for the difference between the $45 million selling price and the amount of funds raised from management, the LBO financiers, and the bank. In exchange for the seller financing by Brian Motley, the existing venture capitalists agreed to reduce their ownership rights from 43 percent to 40 percent. The management team also lowered their claim on the existing venture from 7 percent to 5 percent. Thus, as the result of agreeing to provide seller financing, Brian's percentage ownership of the $45 million selling price was 55 percent. Brian estimated that the interest rate being paid on similar risk subordinated seller loans was currently at 16 percent. A. What will be the dollar amount of seller financing that Brian Motley will need to provide to complete the financing of the $45 million selling price? B. How much cash will be available to distribute to the existing owners of the MiniDiscs Corporation? What will be the dollar breakdown for Brian Motley, the management team, and the venture capitalists? C. What compound rate of return did Motley earn on his $1 million end of 2011 investment? D. What compound rate of return did the venture capitalists earn on their $7 million investment at the end of 2012? E. After five years of operating as a private venture owing to the LBO, assume that the common equity in the MiniDiscs Corporation could be sold for $60 million at the end of 2021. What compound rate of return would the management team earn on its $5 million investment? F. Assume that when MiniDiscs is sold at the end of 2021 for $60 million that the LBO financiers will have their debt retired and will sell their share of interest in the venture. What compound rate of return would the LBO financiers receive?
Expert Answer:
Answer rating: 100% (QA)
A To calculate the amount of seller financing Brian Motley needs to provide we need to subtract the funds raised from management the LBO financiers and the bank from the selling price Funds raised Man... View the full answer
Related Book For
Entrepreneurial Finance
ISBN: 978-0538478151
4th edition
Authors: J . chris leach, Ronald w. melicher
Posted Date:
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