Company B is a pharmaceutical company with a new drug. The drug has met FDA approval...
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Company B is a pharmaceutical company with a new drug. The drug has met FDA approval and ready to sell. Company B needs $15M immediately to invest in working capital and $5M in equipment to start making the new drug. If they start shipping the new drug, Company B expects $10M per year in annual FCF. Analysts estimate that Company B has a beta of 1.0. The market risk premium and risk-free rate are both 5%. Company B founder Alex owns 90% of the shares of Company B and a separate investment group owns 10%. There are 1,000,000 shares outstanding. Please address the following: a. What is the value of Company B's ticket stack? b. What is the price per share of Company B's equity? c. What is Company B's value add? d. The venture capital market is very, very competitive and Company has a number of bidders seeking to provide capital. Suppose that Beta Ventures is set to provide the $20M in exchange for a 20% stake in the company. That is, Beta Ventures will receive new common shares amounting to 20% of the total number of common shares after issuance of shares to Beta. Upon receiving the $20M, Company B will purchase the assets required. i. What are Company B's assets worth? ii. What is Company B's value add? iii. What fraction of the tickets will Beta Ventures now own? iv. How many new shares must be issued to Beta Ventures in exchange for their investment? v. What is the price per share of Company B? Did the price change from your answer above? Why or why not? Company B is a pharmaceutical company with a new drug. The drug has met FDA approval and ready to sell. Company B needs $15M immediately to invest in working capital and $5M in equipment to start making the new drug. If they start shipping the new drug, Company B expects $10M per year in annual FCF. Analysts estimate that Company B has a beta of 1.0. The market risk premium and risk-free rate are both 5%. Company B founder Alex owns 90% of the shares of Company B and a separate investment group owns 10%. There are 1,000,000 shares outstanding. Please address the following: a. What is the value of Company B's ticket stack? b. What is the price per share of Company B's equity? c. What is Company B's value add? d. The venture capital market is very, very competitive and Company has a number of bidders seeking to provide capital. Suppose that Beta Ventures is set to provide the $20M in exchange for a 20% stake in the company. That is, Beta Ventures will receive new common shares amounting to 20% of the total number of common shares after issuance of shares to Beta. Upon receiving the $20M, Company B will purchase the assets required. i. What are Company B's assets worth? ii. What is Company B's value add? iii. What fraction of the tickets will Beta Ventures now own? iv. How many new shares must be issued to Beta Ventures in exchange for their investment? v. What is the price per share of Company B? Did the price change from your answer above? Why or why not?
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Answer rating: 100% (QA)
a The value of Company Bs ticket stack can be calculated using the discounted cash flow DCF method PV FCF Ke g where PV is the present value of the ca... View the full answer
Related Book For
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
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