Chrystal Wong Products is a survival-stage venture.Here is the best guess for what the venture would have left over after all operating expenses and reinvestment: $50,000 this year, $100,000 next year, $200,000 the third year, $2,000,000 the fourth year, and 2,500,000 the fifth year. In the sixth year, Chrystal believes that the mature venture would have a cash flow of approximately $2,700,000 and this would be expected to grow at 5 percent per year after year 6.

1. What is the DCF value of Chrystal Wong’s equity?

Jim wants to invest $500,000 in Chrystal Wong Products in year 3.

2. How much ownership would he acquire in exchange for the $500,000 investment? Briefly explain.

3. What is the projected going concern of Chrystal Wong five years from now?

4. If the P/E multiple for Chrystal Wong is 10, what is the net income at the end of year 5?

If Chrystal Wong is going to maintain the equity multiplier of 1 at all times,

5. What is the enterprise value?

6. What is the crude income available to both debtholders and equity holders?

7. What is an estimate of the EV/EBITDA multiple ?

If Chrystal Wong’s investors believe that the venture has a 20 percent chance of being a black hole, a 60 percent chance of becoming the living dead, and a 20 percent chance of achieving venture utopia.

8. Which discount process allows venture investors to invest without knowing the category (black hole, living dead or utopia)?

Answer rating: 100% (QA)

1 The DCF value of Chrystal Wongs equity is 2875000 This is calculated by taking the present value of the projected cash flows for years 15 and adding ... View the full answer