Question: Same setup as Exercise 14.1, except that now EBV is considering two additional structures: Alternative I: A 2X liquidation preference on the RP; or Alternative

Same setup as Exercise 14.1, except that now EBV is considering two additional structures:

Alternative I: A 2X liquidation preference on the RP; or

Alternative II: A cumulative compound dividend of 0.75 percent per month, to be paid only if dividends are paid to the common stock or on the liquidation of the company.

(a) Find the LP valuation equation for both alternatives.

(b) Compute the LP valuation for both alternatives under the assumption that total valuation5$ 30M. Which alternative should EBV prefer?

Data From Exercise 14.1

Suppose EBV is considering a $5M Series A investment in Newco. EBV proposes to structure the investment as RP with APP of $4M plus 5M shares of common stock. (We refer to this basket of RP plus common as “Series A”.) The employees of Newco have claims on 15M shares of common stock. Following the Series A investment, Newco will have 20M common shares outstanding.

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