WA-4- Valuation; Part 1- VC Method and Fundamental Method as Taught and Illustrated in Ch 14 of your Textbook.

Use ONLY Excel for this WA; and make sure I can trace ALL your calculations. I can only do this if you did NOT plug in the end answers. If responses are plugged in or work turned in via a nonExcel file, no points will be given. Here are two problems under this assignment:

Problem 1. Given the following information, and using the VC method of valuation, determine the % of the company that needs to be given up for $1.5 m investment. (10 points total)

Required ROR by investor(s): 25%

Net income in five years: $ 3.2 m

Expected P/E ratio in four years: 12 times

Problem 2. Part A. Apply the fundamental method of valuation to the following data in order to find a market value (price) for the venture. Part B. What portion of the company should be given up if there is a need for $1.6 m in venture capital? (30 points total)

Year	% of Growth	Revenue (Sales)	After-tax Margin	After-tac Profit	Discount Facto	PV of Earnings
1	15%	3.4m	0	0	1.30	0
2	20		4%
3	25		5
4	30		10
5	35		15
6	40		16

7+ 12% 9

As you see from line 7 and beyond (7+), growth falls to 12%, and profit margin is 9%. Assume also discount rate for years 7 and beyond falls to 15% and stays the same for all such years .