Consider the following startup company which produces a mobile device. The company needs to purchase two...

 

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Consider the following startup company which produces a mobile device. The company needs to purchase two types of inputs. The costs of input A account for 30% of sales and the costs of input B account for 20% of sales. In addition, the following assumptions are made. The company sells one million units of the device at t=1 and X units at t=2. The company sells the device for $10 per unit at t=1 and t=2. The company only exists for two period (t-1,2) and the liquidation (residual) value is zero. There is no CAPEX, no depreciation and no changes in working capital. The tax rate is 30%. The cost of capital (i.e. discount rate) is 40%. (a) Suppose X=2.2 million units at t-2.] the operating income (EBIT), net operating income and free cash flow of the company at t=1 and t=2? [6p] (b) eHero om souras (d) The owner wants to sell the company and hires an investment bank to do a DCF valuation. What is the (DCF-) value of the firm for the seller? [2p] A private equity fund is interested in acquiring this company at t-0. The owner of the company asks for $7 million. The acquisition price of $7 million is paid in cash and fully written off in two years in equal amount (linear depreciation). (c) Does the private equity fund buy the company for that price? [8p] The private equity fund is conducting a sensitivity analysis. Determine the minimum units X sold at t=2 so that the private equity fund breaks even at the purchase price of $7 million. [4p] Consider the following startup company which produces a mobile device. The company needs to purchase two types of inputs. The costs of input A account for 30% of sales and the costs of input B account for 20% of sales. In addition, the following assumptions are made. The company sells one million units of the device at t=1 and X units at t=2. The company sells the device for $10 per unit at t=1 and t=2. The company only exists for two period (t-1,2) and the liquidation (residual) value is zero. There is no CAPEX, no depreciation and no changes in working capital. The tax rate is 30%. The cost of capital (i.e. discount rate) is 40%. (a) Suppose X=2.2 million units at t-2.] the operating income (EBIT), net operating income and free cash flow of the company at t=1 and t=2? [6p] (b) eHero om souras (d) The owner wants to sell the company and hires an investment bank to do a DCF valuation. What is the (DCF-) value of the firm for the seller? [2p] A private equity fund is interested in acquiring this company at t-0. The owner of the company asks for $7 million. The acquisition price of $7 million is paid in cash and fully written off in two years in equal amount (linear depreciation). (c) Does the private equity fund buy the company for that price? [8p] The private equity fund is conducting a sensitivity analysis. Determine the minimum units X sold at t=2 so that the private equity fund breaks even at the purchase price of $7 million. [4p]

Answer rating: 100% (QA)

Introduction EBIT Earnings before interest and taxes Sales Direct Costs Depriciation Amortization Ne... View the full answer