For Questions 1 through 3, assume you are a commercial loan officer with a large regional bank.

1. What type of financing might you be interested in providing to AFC?

2. How would you go about preparing for your meeting with Dr. Aplin and his consultant?

3. Assume you view AFC's venture positively and you have decided to make a financing proposalfor the equipment, land, and facilities. What valuation method would you use to decide howmuch to lend to AFC? Explain.

For Questions 4 through 9, 

assume you are the manager of a venture capital fund, and a bank isoffering to loan $20 million of the $55 million financing requirement. The after-tax cash outflowsto service the bank debt are $5, $5, $5, $5, and $10 million in Years 1 through 5, respectively. Youare considering providing an equity investment for the remaining $35 million required by AFC.

4. List three questions you might ask Dr. Aplin in your meeting with him.

5. You have decided to use the discounted cash flow approach to value AFC. Based on theriskiness of the new business you believe a 30 percent discount rate is appropriate. What is theforecasted value of the AFC to its equity holders? (Hint: Use the cash flows in Table 2 as astarting point.) 

6. What percentage of common stock would you require to invest the needed $35 million? WouldDr. Aplin be willing to sell you this percentage ownership of AFC?

7. Now assume that the estimated terminal value growth rate is 15 percent, and the bank is onlywilling to loan the firm $10 million? Under these conditions, what percentage of commonstock would you require to invest $35 million? Would Dr. Aplin be willing to sell you thispercentage ownership of AFC?

8. Use the multiple of earnings method to estimate the value of AFC's equity. As a first pass, usethe average projected earnings over the first five years as the best estimate of earnings. Thenassume the stock of publicly traded firms with somewhat similar technologies sells at anaverage of eight times earnings.

9. If you used the adjusted tangible book value method to value AFC, how would you determinethe market value of the patent?General questions.

10. In your opinion, what are the two most important segments of a business plan. Why?

11. If you had a promising idea for a business venture and wanted to acquire start-up capital, whatsteps would you take to attain the needed financial resources?

Answer rating: 100% (QA)

Table 1 Balance Sheet Capital Required Cash 1000 Equipment 10000000 Patent 400000 Land 5000000 Total Assets 401000 Construction 35000000 Working Capit... View the full answer