1. Growth Option #1 is to grow in its current market on its own without any...

 

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1. Growth Option #1 is to grow in its current market on its own without any financing from the venture capital (VC) firm. 2. Growth Option #2 is to enter another small market but it requires an injection of equity capital from the venture capital firm in the amount of US$1,250,000. 3. Growth Option #3 is to enter another medium-size market but it requires an injection of equity capital from the venture capital firm in the amount of US$2,750,000. 4. Growth Option #4 is to enter another large-size market but it requires an injection of equity capital from the venture capital firm in the amount of US$4,250,000. One of these four options can be pursued only given the complexities involved with entering a new market. ZZ and Partners has a set of profit-loss projections and the VC firm that is considering investing in this entrepreneurial business has another set of profit-loss projections. While the VC firm felt that sales growth after 2009 was likely to be around 5% per year on average, ZZ and Partners anticipated sales growth of around 10% per year until the end of 2018, and 5% thereafter. The excel sheet emailed to you at the start of the exam includes the two sets of projections. In both sets of projections, future capital expenditures are estimated at 5% of sales, depreciation is estimated at 3% of sales, and the change in net working capital is estimated at 1% of sales, per year. You are required to work with your group members to answer the following questions: Question 1. Prepare the cash flow projections over the years 2009-2018, the terminal value as of year 2018, and the total present value of ZZ and Partners under each of the four growth options from the perspective of the company. Use the attached Table 1 through Table 4. Assume that ZZ and Partners has a 25 % discount rate. 2. N Prepare the cash flow projections over the years 2009-2018, the terminal value as of year 2018, and the total present value of ZZ and Partners under each of the four growth options from the perspective of the venture capital (VC) firm. Use the attached Table 5 through Table 8. Assume that the VC has a discount rate of 20%. Fill in Table 9 and then determine which strategy should ZZ and Partners prefer to take. 3. Explain why? Also, determine which strategy should the venture capital (VC) firm prefer to take. Explain why? What percentage ownership stake in ZZ and Partners should the venture capital (VC) firm 4. receive in each growth option? Show your computations and answers in Table 10 and then explain why? What share should ZZ and Partners agree to? Which strategy do you think ZZ and Partners 5. will adopt? Explain why? Is it optimal from the perspective of the Entrepreneur? Is it optimal from the perspective of the VC? Explain. Weight 40% 40% 10% 5% 5% Earned 1. Growth Option #1 is to grow in its current market on its own without any financing from the venture capital (VC) firm. 2. Growth Option #2 is to enter another small market but it requires an injection of equity capital from the venture capital firm in the amount of US$1,250,000. 3. Growth Option #3 is to enter another medium-size market but it requires an injection of equity capital from the venture capital firm in the amount of US$2,750,000. 4. Growth Option #4 is to enter another large-size market but it requires an injection of equity capital from the venture capital firm in the amount of US$4,250,000. One of these four options can be pursued only given the complexities involved with entering a new market. ZZ and Partners has a set of profit-loss projections and the VC firm that is considering investing in this entrepreneurial business has another set of profit-loss projections. While the VC firm felt that sales growth after 2009 was likely to be around 5% per year on average, ZZ and Partners anticipated sales growth of around 10% per year until the end of 2018, and 5% thereafter. The excel sheet emailed to you at the start of the exam includes the two sets of projections. In both sets of projections, future capital expenditures are estimated at 5% of sales, depreciation is estimated at 3% of sales, and the change in net working capital is estimated at 1% of sales, per year. You are required to work with your group members to answer the following questions: Question 1. Prepare the cash flow projections over the years 2009-2018, the terminal value as of year 2018, and the total present value of ZZ and Partners under each of the four growth options from the perspective of the company. Use the attached Table 1 through Table 4. Assume that ZZ and Partners has a 25 % discount rate. 2. N Prepare the cash flow projections over the years 2009-2018, the terminal value as of year 2018, and the total present value of ZZ and Partners under each of the four growth options from the perspective of the venture capital (VC) firm. Use the attached Table 5 through Table 8. Assume that the VC has a discount rate of 20%. Fill in Table 9 and then determine which strategy should ZZ and Partners prefer to take. 3. Explain why? Also, determine which strategy should the venture capital (VC) firm prefer to take. Explain why? What percentage ownership stake in ZZ and Partners should the venture capital (VC) firm 4. receive in each growth option? Show your computations and answers in Table 10 and then explain why? What share should ZZ and Partners agree to? Which strategy do you think ZZ and Partners 5. will adopt? Explain why? Is it optimal from the perspective of the Entrepreneur? Is it optimal from the perspective of the VC? Explain. Weight 40% 40% 10% 5% 5% Earned

Answer rating: 100% (QA)

Here are the answers to the questions 1 I have completed Tables 14 showing the cash flow projections ... View the full answer