please answer D Use this information to answer questions (a-d). Vail Venture Inv
ID: 2735749 • Letter: P
Question
please answer D
Use this information to answer questions (a-d). Vail Venture Investors. LLC is trying to find the value of Black Hawk Products, Inc. Black Hawk's expected cash flow in the 1^st yr is $1 million. This cash flow will grow at an annual rate of 30% for the next two yrs (2^nd & 3^rd); thereafter the growth rate will stabilize at 10% for ever. Vail investor's required rate of return for the first 3 yrs is 25% and 15% there after. a The Cash Flow in Year 4 is b The horizon or terminal value is c The going concern value of Black Hawk is d What % ownership Black Hawk will have to give up if Vail Investors decide to invest $10million (use post money) valuation?Explanation / Answer
Cash flow in year 1 = 1000000
Cash flow in year 2 = 1000000 + 30 % of 1000000 = $ 1300000
Cash flow in year 3 = 1300000 + 30% of 1300000 = $ 1690000
Cash flow in year 4 = 1690000 + 10 % of 1690000 = $ 1859000
Value at the end of year 3 = 1859000 / 0.15 - 0.10 = $ 1859000 / 0.05 = $ 37180000
Present value today = Cash flow in year 1 * P.V. factor for first year @ 25 % + Cash flow in year 2 * P.V. factor for second year @ 25 % + Cash flow in year 3 * P.V. factor for third year @ 25 % + Value at end of year 3 * P.V. factor for third year @ 25
Present value today = 1000000 * 0.8 + 1300000 * 0.64 + 1690000 * 0.512 + 37180000 * 0.512
Present value today = 800000 + 832000 + 865280 + 19036160
Present value today = $ 21533440
D) The ownership % that Black Hawk will have to give up if vail investors decide to invest $ 10 Million (10 * 1000000 = 10000000) will be = 10000000 / 21533440 = 0.4644 or 46.44 % (approx).
Conclusion:- The ownership % that Black Hawk will have to give up if vail investors decide to invest $ 10 Million = 46.44 % (approx).
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