How does convertible debt differ from convertible preferred stock?
> Petal Providers Corporation opens and operates “mega” floral stores in the U.S. The idea behind the super store concept is to model the U.S. floral industry after its European counterparts whose flower markets generally have larger selections at lower p
> Three Rules (504, 505, and 506) under Regulation D relate to the (a) amount of offerings and (b) number of investors. Match Rules 504, 505, and/or 506 with each of the following: A. $5 million offering limit (in a 12-month period) B. $1 million offering
> The CareAssist Company, a web-based provider of information for the elderly, is planning to sell $4 million in securities. Management is trying to decide which, if any, securities laws must be complied with. For each of the following situations, descri
> The NetCare Company, which operates living assistance facilities, is planning to issue or sell shares of stock to “accredited investors.” Briefly explain whether each of the following individuals would qualify as an “accredited investor” under the SEC’s
> Assume that BKAngel’s initial investments in the three ventures had been Venture 1 = $500,000, Venture 2 = $300,000, and Venture 3 $200,000 with each investment having achieved the same cash flows and ending values shown in Problem 5. A. Calculate the p
> Three venture investments previously made by BKAngel, a venture investor, achieved the following outcomes for the year just completed: Venture Initial Cash Ending Opportunity Value Flow Value Ven1 $300,000 $75,000 $600,000 Ven2 $400,000
> A potential venture investment has the following possible outcomes: Performance Probability of Rate of Outcome Occurrence Return Home Run (Success) .15 500.0% Breakeven .35 15.0 Strikeout (Failure) .50 -100.0 A. What is the expec
> A venture investor, BKAngel, is considering investing in a software venture opportunity. However, the rate of return to be realized next year is likely to vary with the economic climate that actually occurs. Following are three possible economic outcomes
> What is meant by the term structure of interest rates? What is a yield curve?
> Voice River, Inc. is interested in estimating its weighted average cost of capital (WACC) now that it is in its rapid growth stage. Voice River has a $500,000, 10 percent interest, short-term bank loan, a $1.5 million, 12 percent long-term debt issue, a
> Voice River, Inc. has successfully moved through its early life cycle stages and now is well into its rapid growth stage. However by traditional standards this provider of media-on-demand is still considered to be a relatively small venture. The intere
> Kareem Construction Company has the following amounts of interest-bearing debt and common equity capital: Financing Dollar Interest Cost of Source Amount Rate Capital Short-Term Loan $200,000 12% Long-Term Loan $200,000 14% Equity Capital
> Use the following information to estimate the rate of return expected by the VentureBanc Investors: Rate Return Component Component Liquidity Premium 5% Risk-free Rate 6 Advisory Premium 9 Market Risk Premium 7.5 Hubris Projection Premium
> Voice River, Inc. provides media-on-demand services via the Internet. Management has been studying current interest rates. A lender is willing to make a two-year loan to Voice River at a 12 percent annual interest rate. The U.S. government is currentl
> Castillo Products Company improved its operations from a net loss in 2015 to a net profit in 2016. While the founders, Cindy and Rob Castillo, are happy about these developments, they are concerned with trying to understand how long the firm takes to co
> Cash Conversion Cycle] Two years of financial statement data for the Munich Export Corporation are shown below. MUNICH EXPORTS CORPORATION Balance Sheet 2015 2016 Cash $50,000 $50,000 Accounts Receivable
> Artero Corporation is a traditional toy products retailer that recently also started an Internet-based subsidiary that sells toys online. A markup is added on goods the company purchases from manufacturers for resale. Swen Artero, the company president
> Because of an unexpected order, the PDC Company’s sales are forecasted to be $160,000 for September 2017.
> Because of an unexpected order, the PDC Company’s sales are forecasted to be $160,000 for September 2017.
> How is a venture’s WACC likely to change as it moves through a successful life cycle?
> A. Prepare PDC’s sales schedule, purchases schedule, and the wages schedule for August 2017. B. Prepare a cash budget for August 2017 for the PDC Company and describe how the forecast affects the end-of-month cash balance.
> Assuming minimum cash on hand requirements are $10,000 a month through May, increase to $15,000 in June and July, increase further to $20,000 in August and September, and return to the $10,000 per month level beginning in October.
> The Itsar Products Company has made the following monthly estimates of cash receipts and cash disbursements when preparing cash budgets for the next twelve months. Itsar Products has beginning cash on hand of $10,000 and wants to maintain this minimum c
> Safety-First, Inc. makes portable ladders that can be used to exit second floor levels of homes in the event of fire. Each ladder consists of fire resistant rope and high strength plastic steps. A lightweight fire resistant cape with a smoke filter is
> A. Calculate the operating profit margins and the NOPAT margins in 2015 and 2016 for Safety-First, Inc. What changes occurred? B. Calculate the operating return on assets (or the venture’s basic earning power) using year-end balance sheet information for
> Refer to the financial statement data provided below for Safety-First, Inc. SAFETY-FIRST, INC. Income Statements (in $ Thousands) 2015 2016 Net sales 3,750 4,500 Cost of goods sold 2,250 2,700 Gross
> A. Calculate the net profit margin in 2015 and 2016 and the sales-to-total-assets ratio using yearend data for each of the two years. B. Use your calculations from Part A to determine the rate of return on assets in each of the two years for the Castillo
> The Castillo Products Company was started in 2014. The company manufactures components for personal decision assistant (PDA) products and for other hand-held electronic products. A difficult operating year 2015 was followed by a profitable 2016. Howeve
> Following are two years of income statements and balance sheets for the Munich Exports Corporation. MUNICH EXPORTS CORPORATION Balance Sheet 2015 2016 Cash $50,000 $50,000 Accounts Receivables
> A. Calculate the operating return on assets. B. Determine the effective interest rate paid on the long-term debt. C. Calculate the NOPAT margin. How does this compare with the results for the net profit margin? Did the owners benefit from the use of in
> What is meant by the weighted average cost of capital or WACC?
> Bike-With-Us Corporation, a specialty bicycle parts replacement venture, was started last year by two former professional bicycle riders who had substantial competitive racing experience including competing in the Tour de France. The two entrepreneurs b
> A. Using average balance sheet account data, calculate the (a) current ratio, (b) quick ratio, (c) total-debt-to-total-assets ratio, and (d) the interest coverage ratio for 2016. B. Repeat the ratio calculations requested in Part A separately for 201
> The Castillo Products Company was started in 2014. The company manufactures components for personal decision assistant (PDA) products and for other handheld electronic products. A difficult operating year, 2015, was followed by a profitable 2016. The fou
> Describe the terms (a) “control premium” and (b) “illiquidity discount” when discussing possible external or outside buyers of a venture.
> What is an employee stock option plan (ESOP)? How is an ESOP used to buy out a venture?
> What is a systematic liquidation of a venture? What are some of the advantages and disadvantages of a systematic liquidation?
> Describe how the relative value method is used to value a firm’s equity.
> What are unicorns? How might their exit values be impacted when they go public?
> Comment on Tesla’s trip from incorporating in 2003 to its IPO in 2010. What impact do you think the IPO had on competitors in the electric car market?
> Describe some of the preparations that a venture can undertake that may increase the possibility of IPO success.
> What discount rates are typically used for development- stage, startup-stage, survival-stage, and early-growth-stage ventures?
> Indicate some of the differences between the NASDAQ’s National Market System and SmallCap listing requirements.
> Briefly describe how securities are traded on an organized stock exchange such as the New York Stock Exchange.
> Describe the terms “tombstone ad” and “red herring disclaimer.”
> What is investment banking? What is an underwriting spread?
> Describe an initial public offering (IPO). What are the differences between a primary offering and a secondary offering?
> Why are options to buy additional shares of stock used in venture financing? What are warrants?
> What are convertible notes? Why are convertible notes issued, and who typically issues them?
> Which is more favorable to the founders, the Market Price Formula (MPF) or the Conversion Price Formula (CPF)?
> What are the basic design features for financial securities used in venture investing?
> How do we estimate the cost of equity capital for private ventures? In developing your answer describe the major components that are considered when estimating the rates of return required by venture investors.
> What would you need if you wanted to conduct an enterprise valuation for a hypothetical Round D for Fuel3D? Discuss the relationship between Fuel3D and MakerBot. How might it affect the terminal value used in the enterprise valuation?
> What is preferred stock? What is participating preferred stock, and what is meant by paid in kind (PIK) preferred stock?
> Why is the weighted average cost of capital (WACC) used as the discount rate in the enterprise method?
> Is the sale of an out-of-the-money warrant a future sale of equity at a favorable price?
> Why is it important that convertible securities also be callable (redeemable)?
> Why is price protection an issue when convertibles or warrants are used?
> How are put and call options similar? How are they different?
> What is the EB-5 immigrant visas program?
> What is meant by venture banks? How do they differ from traditional commercial banks?
> Name three of the common loan restrictions and explain their relation to new venturing financing. What are some additional common loan restrictions?
> What is a liquidity risk premium? What is a maturity risk premium?
> Describe the two major types of crowdfunding.
> Describe the alternative financing Solix arranged for the launch of its biofuels production facility. Comment on your impressions of what attracted the investors.
> Describe examples of customer funding used to reduce financing needs.
> What are some characteristics of a Community Development Financial Institutions (CDFI) loan?
> In which research areas does the SBA provide supplemental programs?
> Compare the characteristics in terms of loan amounts, lenders, and SBA role in 7(a) loans versus 504 loans.
> Identify and briefly describe four basic SBA credit programs.
> What are business incubators and seed accelerators? How do they differ?
> Who are the major suppliers of venture capital by type and size of commitment?
> Briefly describe how professional venture capital got started after World War II.
> What is meant by an investment risk premium? What is a market risk premium?
> Describe the role venture capitalists played in the founding and expansion of Tabula. Comment on possible reasons for the involvement of multiple VC firms.
> Discuss why it is important to have an exit event for each investment held by a venture investment fund.
> What can be learned from the SBA’s creation and the Internal Revenue Service’s subsidy of venture investing through SBICs?
> Why are venture capital funds typically organized as limited partnerships? In particular, why are they private firms instead of public firms?
> What should be the goal of the financial projections in a business plan submitted to a venture capitalist?
> Why do venture capitalists make quick decisions on the infeasibility of some business plans? When a business plan is not quickly determined to be infeasible, what happens next and why?
> What ingredients would you need to conduct a VCSC valuation for Excaliard? Does your calculation suggest that a $15.5 million Series A round is reasonable?
> Discuss the type of data and the procedural changes necessary to implement a five- scenario expected PV valuation for a venture investment.
> Describe how expected present value is calculated when there are two or more scenarios.
> Describe the following terms from the perspective of venture performance: black hole, living dead, and venture utopia. In what sense is the typical business plan utopian?
> How does an organized securities exchange differ from an over-the-counter market?
> Describe two important motives for having an equity component in employee compensation.
> What is the difference between the direct comparison method and the direct capitalization method?
> What is a stepping stone year? Why is it important in determining a venture’s value?
> What is meant by a capitalization (or cap) rate in reference to calculating a terminal value? What other types of terminal values might be appropriate (i.e., other than smooth growth procedures)?
> What is a venture’s present value? Does the past matter?
> What ingredients would you need to conduct a traditional equity method valuation for Foursquare? If you had the necessary projections, do you think that they would also suggest the $80 to $100 million valuations mentioned in the article? Comment on the
> Why do net income and cash flow in the numerical examples in this chapter both grow at the same rate (g) in the terminal value period? Why is this important?
> Why do the numerical examples of this chapter involve a large dividend in the last year of the explicit forecast period?
> Describe how pseudo dividends are used in the equity valuation method.
> Describe the basic additional funds needed (AFN) equation.
> You have been retained as a consultant for Lovely Touch and tasked with assessing the financial viability of their commercial ventures. What types of financial ratios would you enlist in your report to Lovely Touch?
> Identify and describe the two equations that can be used to estimate a firm’s sustainable growth rate.
> What is meant by a sustainable sales growth rate?
> How do venture investors adjust for the belief that entrepreneurs tend to be overly optimistic in their sales forecasts?
> Describe the general relationship between the life cycle stage and the ability to accurately forecast sales for a firm.
