Friday, 6 November 2015



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FIN 512 Week 3 Homework

Chapter 6 & 7
4. Why is it usually easier to forecast sales from seasoned firms in contrast with early-stage ventures?
11. A. Calculate the after-tax (WACC) for Kareem.
12. A. Determine the historical average annual market risk premium for small-firm common stocks

Calculate the: net profit margin; total-sales-to-total-assets ratio; the equity multiplier; and the return on equity for both 2009 and 2010 for the Castillo Products Corporation. Describe what happened in terms of financial performance between the two years.

FIN 512 Week 4 Homework

Chapter 10
A. Estimate the value of the new venture at the end of year 5. Show your answer using both the direct comparison method and the direct capitalization method. What assumption are you making when using the current price-to-earning relationship for the comparable firm?
B. Estimate the present value of the venture at the end of year 0 if the venture capitalist wants a 40 percent annual rate of return on the investment.
8. Who are the major suppliers of venture capital by type and size of commitment?
9. What is meant by the terms (a) capital call, (b) deal flow, and (c) due diligence?
10. What is meant by the terms (a) lead investors, (b) SLOR, and (c) term sheet?
12. 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?
15. Why are venture capital funds typically organized as limited partnerships? In particular, why are they private firms instead of public firms?
A. VC is considering providing the additional $5 million. What type of fund (stage specialization, industry focus, etc.) would you approach? In what part of their investing cycle would you hope to approach them?
B. Discuss how Interact Systems would expect to fare in the VC screening process involving each element of Figure 11.5.
C. Discuss typical issues that might be addressed in a term sheet using Figure 11.6 as a reference.


1. (TCO B) Which of the following characteristics does NOT apply to subchapter S corporations?
2. (TCO D) The planning of cash needs of a business is conducted using a life cycle approach. Which of the following tasks is/are performed in the development stage of the life cycle?
3. (TCO C) What is meant by the statement that a balance sheet provides a snapshot of a venture’s financial position as of a point in time? Why must a balance sheet be in balance? Describe briefly how the two sides of the statement are connected. What specific accounts on the Balance Sheet are connected to the Income Statement and the Statement of Cash Flows?
4. (TCO B) The CEO of Hernandez Database Design died today; she owned the firm. Discuss the impact on the business’ life and operations if its corporate form is a) a sole proprietorship and b) if it is a C Corporation?
5. (TCO C) AudioFile would like to know its EBDAT breakeven level. The company has only one product, the Voce9000 speaker, a high-end speaker that downloads media player files into its own memory. The firm’s speakers sell for $10,000 each. Each speaker costs $6,500 in materials and manufacturing costs (all production is outsourced to an external manufacturer). The firm’s headquarters facility lease is $350,000 annually, its marketing expense is $100,000 per year, and salary costs are $550,000 annually. Complete the following, and show all your calculations for each.
6. (TCO A, D) H2Oh! has patented a brilliant technology that transforms dry air into drinkable water. In 2012, the company has $8 million in revenue, and $1.2 million in net income. H2Oh! began the year with $5 million in book equity on January 1. Complete the following, and show all your calculations for each:
(TCO A) What does it mean to screen a venture opportunity? Discuss the components that are utilized in the VOS Indicator screening tool and the metrics used for at least one specific factor within each of the broad factor categories that are used to assesses the attractiveness of a venture opportunity (i.e., industry considerations, pricing considerations, harvesting considerations, etc.).


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