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antiseptic1488 [7]
3 years ago
15

A potential investor is seeking to invest $500,000 in a venture, which currently has 1,000,000 million shares held by its founde

rs, and is targeting a 50% return five years from now. The venture is expected to produce half a million dollars in income per year at year 5. It is known that a similar venture recently produced $1,000,000 in income and sold shares to the public for $10,000,000.a. What is the percent ownership of our venture that must be sold in order to provide the venture investor’s target return?
b. What is the number of shares that must be issued to the new investor in order for the investor to earn his target return?


c. What is the issue price per share?


d. What is the pre-money valuation?


e. What is the post-money valuation?
Business
1 answer:
Sergeu [11.5K]3 years ago
7 0

Answer:

a, 15%

b, 150,000

c, $ 3.30

d, = $3,333,333.33

e, $3,833,333.33

Explanation:

To solve this,

Note that we have been given a similar venture to compare to our venture.

The total shareholder's equity for the other venture (P) = $10,000,000 and the net income (E) = $1,000,000

Hence, Price/Earnings (P/E) for other venture = 10,000,000/1,000,000 = 10.0

Now for our venture, Earnings in the 5th year = $500,000

Assuming that P/E ratio for both the ventures to be equal, P/500,000 = 10.0

hence, total shareholder's value for our venture = $5,000,000 --------------- (1)

Now the investor invested $500,000 and expected 50% return after 5 years, hence the investor's value after 5 years would be equal to 500,000 * (1+50%) = $750,000 --------------- (2)

Now percent ownership of venture given to investor = (Value of investor's investment after 5 years/total value of all shareholders after 5 years)

Hence, divide (2) by (1)

percent ownership of venture given to investor = 750,000/5,000,000 = 0.15

or 15%

Therefore Answer to part 'a' is = 15%

Part (b) :For the percentage ownership given to new investor = 15%, total number of shares = 1,000,000

Hence, number of shares issued to new investor = 15% x 1,000,000 = 150,000

Hence, answer to part b = 150,000

Part (c): Amount invested by new investor = $500,000 and number of shares issued to him = 150,000

hence issue price of share = Amount invested / Number of shares issued

= 500,000/150,000 = $3.33

Hence, issue price per share = $3.33

Part (d):

The Pre money valuation is the value of the company before any external funding. In this case, the number of shares held with the founders before the new investor = 1,000,000 and the equity price = $3.33

hence, Value of the venture = 3.33 * 1,000,000 = $3,333,333.33

Hence, pre money valuation of the venture = $3,333,333.33

Part (e): Post money valuation of a company is the value of the company after external funding. In this case, investor invests $500,000 to the venture increasing the value of the company by the same amount.

Hence post money valuation = pre money valuation + Investment

= 3,333,333.33 + 500,000

= 3,833,333.33

Hence, post-money valuation of the venture = $3,833,333.33

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"Zurich Company reports pretax financial income of $70,000 for 2014. The following items cause taxable income to be different th
Ivan

Answer:

Explanation:

Income tax expense: The expense account that reveals the amount of pre-determined tax paid on income for a required period of time is known as income tax expense account. The following formula can be used to determine the income tax expense:

Income tax expense = (Income before tax\times Income tax rate

Income statement: This is the financial statement of a company which reports all the revenues that are earned and expenses that are to be expended by the company on the immediate accounting year. Income statement is also known profit and loss statement.

Rules for debit and credit:

  • When asset increases, debit it and when asset decreases, credit it.

  • When liabilities increase, credit it and when liabilities decrease, debit it.

  • When stockholders’ equity increases, credit it and when stockholders’ equity decreases, debit it.

  • When the expenses and losses increase, debit them and when the expenses and losses decrease, credit it.

  • When incomes and gains increase, credit them and when incomes and gains decrease debit them.

Earnings before tax: It is the revenue of a company before adjustment of tax. It consists of all operating expenses. It is the earning retained by the company.

1.) To calculate the taxable income and income tax payable:

    Particulars                              Current year      Deferred asset     Deferred liability

Financial income                            $70,000

Excess tax collected                      $16,000                                           $16,000

Excess rent collected                    $22,000              -$22,000

Fines (permanent)                          $11,000

Taxable income(IRS)                     $87,000              -$22,000            $16,000

Tax rate                                           30%                      30%                     30%

Income tax                                     $26,100               -$6,600              $4,800

Therefore, the taxable income is $87,000, and the income tax is $26,100 for current year.        

The taxable income is calculated by adding the income earned, which are eligible for taxation. The financial income is $70,000, the excess tax depreciation is $16,000 (which should be deducted), and the excess rent collected is $22,000. The fines are $11,000. It is taxable as it is permanent. Thus, the taxable income is $87,000. The tax rate is 30 percent. The taxable income should be multiplied with the tax rate. Thus, the taxable income is $26,100. It is income tax payable.

2.) To Prepare a journal entry to record income tax expense, deferred income taxes, and income tax payable for 2014.

Date      Account titles and ex[planations      Debit           Credit

2014      Income tax expense                          $24,300

             Deferred tax asset                             $6,600

             Deferred tax liability                                                  $4,800

             Income tax payable                                                  $26,100

Therefore, income tax expense is debited with $24,300, deferred tax asset is debited with $6,600, deferred tax liability is credited with $4,800, and the income tax payable is credited with $26,100.

It is given that the income tax expense, deferred income taxes, and income taxes payable should be recorded. The income tax expense is $24,300, deferred tax asset is $6,600, deferred liability is $4,800, and the income tax payable is $26,100. The income tax payable is calculated by adding the income tax expense to the deferred tax asset and deducting the obtained value from the liability. Thus, $24,300 is added to $6,600 and deducted by $4,800 and $26,100. Therefore, the income tax expense is debited with $24,300, deferred tax asset is debited with $6,600, deferred tax liability is credited with $4,800, and the income tax payable is credited with $26,100.

3.) To Prepare the income tax expense section of the income statement for 2014.

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Particulars                                             Amount       Amount

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Income tax expenses current             $26,100

Income tax expenses deferred          -$1,800         $24,300

Net income(loss)                                                       $45,700

It is given that the income before taxes is $70,000, income tax expense of current year is $26,100, and for the deferred year is $1,800. The net income tax expense is $24,300. The net income is calculated by deducting the income before taxes from the income tax expenses. Thus, $24,300 is deducted from $70,000. Therefore, the net income is $45,700.

6 0
3 years ago
Naomi is planning to get a job after graduating from college. Which explains why she should establish a positive credit history?
AleksandrR [38]

Answer:

A). She will appear more responsible to future employers.

<u>Multiple choices</u>

A). She will appear more responsible to future employers.

B). She will be able to do the job better.

c). She will be able to complete her job search application better.

D). She will get an increase in the interest rate on her student loans.

Explanation:

A positive credit score is a result of responsible use of income against the debts incurred. It shows an individual is good at managing their personal finances. A negative credit score paints a bad picture of an individual. It communicates a lack of self-discipline in managing debts.

A positive credit score will portray Naomi as responsible in using her finances. Her employers will view her as good at managing money.

6 0
3 years ago
Read 2 more answers
Bond J has a coupon of 7.6 percent. Bond K has a coupon of 11.6 percent. Both bonds have 12 years to maturity and have a YTM of
elena55 [62]

Answer:

Bond J has a coupon of 7.6%  

Bond K has a coupon of 11.6%

12 years to maturity and YTM of 8.2%

first we must determine the current market price of both bonds using the yield to maturity formula:

YTM = {C + [(FV - PV) / n]} /  [(FV + PV) / 2]

  • YTM = 8.2%
  • C = coupon payment = $76 and $116
  • FV = face value or value at maturity = $1,000
  • PV = present value or current market value = ???
  • n = 12 years

current market value of Bond J:

0.082 = {76 + [(1,000 - PV) / 12]} /  [(1,000 + PV) / 2]

[(1,000 + PV) / 2]  x 0.082 = 76 + [(1,000 - PV) / 12]

41 + 0.041PV = 76 + 83.33 - 0.083PV

0.124PV = 118.33

PV = 118.33 / 0.124 = $954.27

current market value of Bond K:

41 + 0.041PV = 116 + 83.33 - 0.083PV

0.124PV = 158.33

PV = 158.33 / 0.124 = $1,276.85

a. If interest rates suddenly rise by 2.2 percent, what is the percentage price change of these bonds?

YTM = {C + [(FV - PV) / n]} /  [(FV + PV) / 2]

  • YTM = 8.2% + 2.2% = 10.4%
  • C = coupon payment = $76 and $116
  • FV = face value or value at maturity = $1,000
  • PV = present value or current market value = ???
  • n = 12 years

market value of Bond J:

0.102 = {76 + [(1,000 - PV) / 12]} /  [(1,000 + PV) / 2]

[(1,000 + PV) / 2]  x 0.102 = 76 + [(1,000 - PV) / 12]

102 + 0.051PV = 76 + 83.33 - 0.083PV

0.134PV = 157.33

PV = 57.33 / 0.134 = $427.84

market value of Bond K:

102 + 0.051PV = 116 + 83.33 - 0.083PV

0.134PV = 97.33

PV = 97.33 / 0.134 = $726.34

Bond J's market price will decrease by ($427.84 - $954.27) / $954.27 = -55.17%

Bond K's market price will decrease by ($726.34 - $1,276.85) / $1,276.85 = -43.11%

b. If interest rates suddenly fall by 2.2 percent, what is the percentage price change of these bonds?

YTM = {C + [(FV - PV) / n]} /  [(FV + PV) / 2]

  • YTM = 6%
  • C = coupon payment = $76 and $116
  • FV = face value or value at maturity = $1,000
  • PV = present value or current market value = ???
  • n = 12 years

current market value of Bond J:

0.06 = {76 + [(1,000 - PV) / 12]} /  [(1,000 + PV) / 2]

[(1,000 + PV) / 2]  x 0.06 = 76 + [(1,000 - PV) / 12]

30 + 0.030PV = 76 + 83.33 - 0.083PV

0.113PV = 129.33

PV = 129.33 / 0.113 = $1,144.51

current market value of Bond K:

30 + 0.030PV = 116 + 83.33 - 0.083PV

0.113PV = 169.33

PV = 169.33 / 0.113 = $1,498.50

Bond J's market price will increase by ($1,144.51 - $954.27) / $954.27 = 19.94%

Bond K's market price will increase by ($1,498.50 - $1,276.85) / $1,276.85 = 17.36%

8 0
3 years ago
_____________ are sunk costs because the company will have to pay the cost no matter production or other variables in operations
Lina20 [59]

Answer:

E. Fixed Costs

Explanation:

Here are the options to this question :

A. Variable Costs

B. Labor Costs

C. Total Costs

D. Raw material Costs

E. Fixed Costs

Sunk costs are costs that have already been incurred and cannot be recovered. They should not be considered when making future economic decisions.

Fixed cost is cost that do not vary with production. e.g. rent

Most companies pay rent per year. if due to unforeseen contingencies, sales and profit of the company declines and the company decides to shut down production, the company has already paid for rent, this amount cannot be recovered even though the company would not be using the space for sometime. So, rent is an example of sunk cost

6 0
4 years ago
Corporate-level strategies are strategies a firm uses to diversify its operations from a single business competing in a single m
andrew-mc [135]

Answer:

a. False

Explanation:

Corporate level strategies are undertaken by the top management formulating strategic business policies with a purpose of achievement of long term goals and objectives.

Such policies affect the organization as a whole. The purpose of corporate level strategies is to maximize profits over a period and ensure success.

Diversification strategy is aimed at adding operations to pre existing line of operations into different category of products and markets and explore new business ventures.

Hence, corporate level strategies are not limited to diversification strategy as the concept of corporate level strategy is much broader.

7 0
4 years ago
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