1 You are a venture capitalist.
You are estimating a new project will have a beta of 5.
What is your required return, using the CAPM, if risk free rate is 5% and the market risk premium is 4%?
2 What is the Cash flow to owners, given the following information:
(Calculate After tax cash flow after Capex)
| Cash from operations |
|
|
650 |
| Tax Rate |
|
|
|
28% |
| Interest Expense |
|
|
135 |
| Depreciation |
|
|
|
245 |
| Total Debt payment (P + I) |
|
|
235 |
| Capital Expenditures |
|
|
55 |
2. Assume a venture capitalist became your partner by injecting $500k into common equity of your company.
The venture capitalist / partner owns 50% of the entity, a "C" corporation (fully taxable entity).
Assume the entity is stabilized and sustaining and produces the following cash flows:
These are considered retained earnings after CapEx and all debt service; able to be distributed to owners.
without any detriment to the entity.
$ in '000's
Year 1 2 3 4 5
Cash Flows 250 265 275 277 285
These cash flows are distributed to owners of the corporation.
Furthermore, at the last day of year 5, the firm is sold for 5 times cash flow.
The Venture capitalists tax rates are as follows:
Ordinary income 28%
Capital Gains 15%
What is the IRR achieved for the VC?
Attachment:- Capital-Sourcing.xls