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1. Surplus Cash and Reversion Value of a Venture Written Assignment
Surplus Cash and Reversion Value of a Venture Written Assignment ON Surplus Cash and
Reversion Value of a Venture Written Assignmentattachment_1Unformatted Attachment
PreviewQuestion 1 The wider the capitalization or “cap” rate (i.e., the discount rate minus
the growth rate in the terminal period), the higher the terminal value. True False Question 2
“Equity valuation cash flow” is defined as: net sales + depreciation and amortization
expense – change in net operating working capital (excluding surplus cash) – capital
expenditures + net debt issues. True False Question 3 The reversion value of a venture is the
present value of the venture’s terminal value. True False Question 4 Surplus cash is the cash
remaining after required cash, all operating expenses, and reinvestments are made. True
False Question 5 The terminal or horizon value is the value of a venture at the end of its
explicit forecast period. True False Question 6 The value today of all future cash flows
discounted to the present at the investor’s required rate of return is called? present value
net present value going-concern value reversion value terminal value Question 7 The value
of the venture at the end of the explicit forecast period is called the horizon value, or what?
present value net present value terminal value going-concern value reversion value
Question 8 “Required cash” is? cash available to pay as a dividend cash needed to cover a
venture’s day-to-day operations the cash needed to pay interest expense a valuation
method for early stage ventures Question 9 To calculate a terminal value, one divides the
next period’s cash flow by the: constant discount rate plus a constant growth rate constant
growth rate plus a variable discount rate constant growth rate minus constant discount rate
constant discount rate plus a variable growth rate constant discount rate minus a constant
growth rate Question 10 Your firm has been in business for two years. In its first year, the
firm ended with $227,000 of current assets, long-term assets of $143,000, $70,000 in
surplus cash, current liabilities of $52,000, and long-term assets of $68,000. At the end of
the second year, current assets were $279,000, long-term assets of $195,000, surplus cash
of $90,000, current liabilities of $62,000, and long-term assets of $78,000. What is your
firm’s change in net operating working capital? $244,000 $32,000 $62,000 $42,000 $22,000
Question 11 In a wildly successful first year in business that started and ended with no
required cash, your firm has operating income of $989,000, net income of $637,000, current
assets of $900,000, current liabilities of $659,000, net capital expenditures were $690,000,
and depreciation was $460,000. Surplus Cash and Reversion Value of a Venture Written
AssignmentThe firm has never financed itself with debt. What is your equity valuation cash
flow? Hint: Since this is the first year, the starting current asset and liability are both zero.

2. $648,000 $900,000 $166,000 $2,028,000 Question 12 Estimate a venture’s terminal value
based on the following information: current year’s net sales = $500,000; next year’s
expected cash flow = $16,000; constant future growth rate = 10%; and venture investors’
required rate of return = 20%. $285,714 $200,000 $156,846 $150,000 $160,000 Question
13 When estimating the terminal value of a venture using an equity valuation method, a
perpetuity growth equation is often applied that uses the capitalization rate for discounting
purposes. This “cap” rate is measured as the: equity discount rate minus the perpetuity
growth rate risk-free rate minus the perpetuity growth rate equity discount rate plus the
perpetuity growth rate risk-free rate plus the perpetuity growth rate Question 14 What is
the difference between pre-money valuation and post-money valuation? revision value
amount of money previously contributed by venture investors size of the capitalization rate
amount of money previously contributed by founders amount of money injected by new
investors Part 2: Venture Capital Valuation Methods Question 15 The basic venture capital
method estimates a venture’s value using only terminal/exit flows to all the venture’s
owners. True False Question 16 A direct application of the earnings-per-share ratio to
venture earnings is known as the direct comparison valuation method. True False Question
17 The venture capital valuation method estimates the venture’s value by projecting both
intermediate and terminal/exit flows to investors. True False Question 18 The value of the
existing venture without the proceeds from the potential new equity issue is known as? the
capitalization rate staged financing post money valuation pre-money valuation Question 19
Financing provided in sequences of rounds rather than all at one time is known as? the
capitalization rate pre-money valuation staged financing post money valuation Question 20
A P/E multiple refers to: price/earnings multiple price/expectations multiple
profit/earnings multiple profit/EBIT multiple price/EBITDA multiple Question 21 Estimate
the value of a privately-held firm based on the following information: stock price of a
comparable firm = $20.00; net income of a comparable firm = $20,000; number of shares
outstanding for the comparable firm = 10,000; and earnings per share for the target firm =
$3.00. $30.00 $40.00 $10.00 $50.00 $20.00 Question 22 Determine the future value of a
target venture which has net income expected to be $40,000 at the end of four years from
now. A comparable firm currently has a stock price of $20.00 per shares; 100,000 shares
outstanding; and net income of $50,000. $1.4 million $2.0 million $1.6 million $1.0 million
Question 233 pts Suppose your venture’s expected mean cash flows are $(85,000) initially,
Surplus Cash and Reversion Value of a Venture Written Assignmentfollowed by expected
mean cash flows at the end of the first, second, and third years of $40,000, $40,000, and
$35,000. What is the internal rate of return? 17.2% 14.7% 13.9% 19.2% 16.2% Question 24
Determine the net income of a “comparable” firm based on the following information: value
of target firm = $4,000,000; net income of target firm = $200,000; stock price of
“comparable” firm = $30.00; and 300,000 shares of stock outstanding for the comparable
firm. $700,000 $500,000 $600,000 $450,000 $550,000 Question 25 Comment on “Investors
pay for the future; entrepreneurs pay for the past. Question 2615 pts [Venture Present
Values] Ben Toucan, owner of the Aspen Restaurant, wants to determine the present value
of his investment. The Aspen Restaurant is currently in the development stage but hopes to
“begin” operations early next year. After-tax cash flows during the next five years are

3. expected to be as follows: Year 1 = 0, Year 2 = 0, Year 3 = 0, Year 4 = $2.5 million, and Year 5
= $3 million. Cash inflows are expected to be $3.18 million in Year 6 and are expected to
grow at a 6 percent annual rate thereafter. Recall that venture investors often use different
discount rates when valuing ventures at various stages of their life cycles. For example,
target discount rates by life cycle stage are development stage, 50 percent; startup stage, 40
percent; survival stage, 35 percent; and early rapid-growth stage, 30 percent. As ventures
move from their late rapidgrowth stages and into their maturity stages, a 20 percent
discount rate is often used. 1. Determine the Aspen BrewPub’s terminal or horizon value at
the end of five years. VCF6 = VCF5 * (1+g) = ?? Terminal Value = VCF6 / (r-g) = ?? 2. What is
the present value of the Aspen BrewPub? PV = VCF1 / (1+r) + VCF2 / (1+r)^2 + ….+ VCF5 /
(1+r)^5 + Terminal.value / (1+r)^5 = ?? 3. What percent ownership interest should Ben
Toucan be willing to give to a venture investor, Sherri Isitar, for her $1,000,000 investment?
Ownership interest = ? Question 27 [Venture Capital Valuation Method] A venture capitalist
firm wants to invest $1.5 million in your NYDeli dot.com venture that you started six
months ago. You do not expect to make a profit until year four when your net income is
expected to be $3 million. The common stock of BioSystems, a “comparable” firm, currently
trades in the over-the-counter market at $30 per share. BioSystems’ net income for the
most recent year was $300,000 and the firm has 150,000 shares of common stock
outstanding. 1. Apply the VC method to determine the value of the NYDeli at the end of four
years. Comparable’s EPS = ? Comparable’s P/E = ? Venture’s projected value at year 4 = ? 2.
If VCs want a 40% compound annual rate of return on similar investments, what is the
present value of your NYDeli venture? Present value = (Value @ year 4) / (1 + r)4 = ? 3.
Based on the pre-money value, what percentage of ownership of the NYDeli dot.com
venture will you have to give up to the VC firm for its $1.5 million investment? Ownership =
? 4. Based on the post-money value, what percentage of ownership of the NYDeli dot.com
venture will you have to give up to the VC firm for its $1.5 million investment? Owernership
= ? ..Surplus Cash and Reversion Value of a Venture Written Assignment