John Tambers, CEO of Bisco, Inc., sought to raise $5M in private placement of equity from...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
John Tambers, CEO of Bisco, Inc., sought to raise $5M in private placement of equity from VC Mike Marks in John's early stage networking company. John conservatively projected net income of $5M in year 5, and knew that comparable companies traded at a price eamings ratio of 20x. (Total 15 points) a. What share of the company would Mike require if his required rate of return was 50% and he was taking convertible preferred stock? (2 point) b. In his term sheet to John, Mike has instead proposed using participating preferred stock with 1x liquidation preference. What effect does using the security Mike proposed have on his effective rate of return? Judging by Mike's retum at exit how much of the company does Mike actually own? (5 point) c. If John agrees to use the participating preferred security, what percentage of the company should he propose in his counter-offer so that Mike does not receive more than his original 50% required rate of return? (5 point) d. Fill in the following table assuming the deal is done using the participating preferred stock that Mike has proposed. (3 point) John Tambers, CEO of Bisco, Inc., sought to raise $5M in private placement of equity from VC Mike Marks in John's early stage networking company. John conservatively projected net income of $5M in year 5, and knew that comparable companies traded at a price eamings ratio of 20x. (Total 15 points) a. What share of the company would Mike require if his required rate of return was 50% and he was taking convertible preferred stock? (2 point) b. In his term sheet to John, Mike has instead proposed using participating preferred stock with 1x liquidation preference. What effect does using the security Mike proposed have on his effective rate of return? Judging by Mike's retum at exit how much of the company does Mike actually own? (5 point) c. If John agrees to use the participating preferred security, what percentage of the company should he propose in his counter-offer so that Mike does not receive more than his original 50% required rate of return? (5 point) d. Fill in the following table assuming the deal is done using the participating preferred stock that Mike has proposed. (3 point)
Expert Answer:
Answer rating: 100% (QA)
a Mike would require 50 of the company if his required rate of r... View the full answer
Related Book For
Fundamentals of Financial Management
ISBN: 9780273713630
13th Revised edition
Authors: James van Horne, John Wachowicz
Posted Date:
Students also viewed these banking questions
-
Stage Corporation has both convertible preferred stock and convertible debentures outstanding at the end of 20X3. The annual cash payment to the preferred shareholders and to the bondholders is the...
-
A share of a ventures preferred stock is convertible into 1.5 shares of its common stock . The dividend on the preferred stock is $0.50 per share. A. If the firms common stock is currently trading at...
-
Mike has decided that it is time he put his money to work for him. He has accumulated a substantial nest egg in a savings account at a local bank, but he realizes that with less than 3% interest he...
-
1. Describe briefly how computers work and become tools for committing cyber-related crimes. 2. Use of proxies and VPNs is one of the methods cybercriminals try to cover their digital track and...
-
For each of the following events affecting Vickys Day Care Center in E15- 2, identify the accounts that would be increased and those that would be decreased: 1. The first of the 2 months for which...
-
A firm is considering the following alternatives, as well as a fifth choice: do nothing. Each alternative has a 5-year useful life. The firm's minimum attractive rate of return is 8%. Which...
-
Describe the rights of patients as reviewed in this chapter.
-
During the current year, Irene, a married individual who files a joint return, reports the following items of income and loss: Salary .. $130,000 Activity X (passive) . 10,000 Activity Y (rental real...
-
mework #3 i Saved Check my work mode: This shows what is correct or incorrect for the work you have comp The year-end financial statements of Cobra Tax Services are provided below. Service revenue...
-
Review the problem in the Work It Out titled "Interpreting the AD/AS Model." Like the information provided in that feature, Table 24.2 shows information on aggregate supply, aggregate demand, and the...
-
State the relation between reduce mass of a molecule and the change in vibrational energy. Also, explain how variations in one quantity affect the other.
-
Consider four cities, A, B, C, and D, located as follows: A D B C Suppose that the residents of these cities consume widgets, with con- sumption in each city equaling 100 widgets (see the map below)....
-
Dome Metals has credit sales of $324,000 yearly. If Dome offers a 3 percent discount for payment in 15 days, what will the average accounts receivable balance be? Assume all customers would pay on...
-
A Del Monte bond with a face value of $1,000 has an annual coupon of 6.75%. The bond had an original 7-year tenor and 4 years remaining to maturity. If the market interest rate for similar high yield...
-
During 2013, Parker Enterprises generated revenues of $60,000. The company's expenses were as follows: cost of goods sold of $30,000, operating expenses of $12,000 and a loss on the sale of equipment...
-
A sample of size 20 is taken from a population with an unknown standard deviation. The sample standard deviation is calculated as 10. What is the margin of errors for a 90% confidence interval?...
-
Case Study Article: 'ZERO TOLERANCE': Restaurant chain staff shocked by threat against speaking languages other than English Weblink:...
-
Calculate Total Contribution Margin for the same items. Total Revenue Total Variable Costs Total Contribution Margin $50.00 a. $116.00 $329.70 b. $275.00 $14,796.00 $7,440.00 c. $40,931.25 d....
-
Fez Fabulous Fabrics wishes to acquire a $100,000 multifacet cutting machine. The machine is expected to be used for eight years, after which there is a $20,000 expected residual value. If Fez were...
-
A company has total annual sales (all credit) of $400,000 and a gross profit margin of 20 percent. Its current assets are $80,000; current liabilities, $60,000; inventories, $30,000; and cash,...
-
Able Elba Palindrome, Inc., is evaluating a capital investment project. The after-tax cash flows for the project are listed as follows: YEAREXPECTED CASH FLOW 0..$-400,000 1.. 50,000 2.. 50,000 3.....
-
What are a manager's resources?
-
What are the three levels of management?
-
What is the glass ceiling?
Study smarter with the SolutionInn App