Assignment #3

If your firm is considering purchasing a startup with sales of $10 million in an industry with a P/S ratio of 5, what might be a reasonable price to pay for the company? If the most VC financing 2 years ago valued the startup at $40 million and the VC leading that round expects a minimum ROI of 40%, what would be a price the VCs may accept? Please select correct pair of answers. A. $10 million/$15 million B. $50 million/$79 million C. $15 million/$50 million D. $50 million/$50 million E. $50 million/$60 million

B. $50 million/$79 million

If the nominal rate of interest on the U.S. 30-yr bond is 3% and the expected inflation is 4%, what is the real rate of interest of this bond? A. 3% B. -1% C. 1% D. -2% E. 6%

B. -1%

In estimating the impact of a change in interest rates on the value of a bond, using the 1% approximation method discussed in class, calculate the change in value for the following. Your bank purchased a 10-yr bond with a face value of $1,000 that yields 1%; one year later newly issued 10-yr bond yields 4%. What is the approximate % decrease/increase in the current market value of the original bond purchased 1 year ago? A. -9% B. -27% C. -3% D. +27% E. -12%

B. -27%

In your recent VC-financed firm presentation, you researched and reported your firm's most recent amount of financing received and its valuation at that time. If your firm raised $10 million in financing in order to fund its growth, but it was projected to continue losing/burning $1 million/month in cash, how long could it operate before raising more financing if it had $1 million in cash at the time of its $10 million funding? A. 1.5 years B. 2 years C. 11 months D. 120 months E. 22 months

C. 11 months

Your VC firm typically invests in firms with an expected rate of return of 50% and a standard deviation of expected returns of 200%. What is your VC firm's average coefficient of variation? A. 1/4 B. 5 C. 4 D. 200% E. 250%

C. 4

In developing strategic financial forecasts, the timing of your collections of sales can impact which of the following? A. timing of cash receipts B. need for financing to fund cash flow cycle C. ending cash balance each month D. all of these E. cash flow from operations

D. all of these

Which of the following is a characteristic of a VC firm? A. have about 500 portfolio firms B. raise capital from retail investors C. fund duration of 20 years D. none of these E. fund size of $1 trillion

D. none of these

If the pre-money (prior to new round of financing) value of a firm is $15 million, and the amount of new investor financing is $5 million, what is the post money valuation (after new round of financing) of the firm ____, and what is the ownership dilution (amount of ownership going to investors for the $5 million in financing) _____? A. $25 million/20% B. $15 million/33% C. $20 million/20% D. $20 million/33% E. $20 million/25%

E. $20 million/25%

As a financial manager for a public company you are assessing 2 potential projects in which to commit your firm's capital to, Alpha and Bravo. They each have an expected rate of return of 30%, but the variance and standard deviation of return for Bravo is smaller than that of Alpha. Which project is the riskier investment, and which project has the best risk/reward profile for a corporate project? A. Alpha/Bravo/Charlie B. Alpha/Alpha C. Bravo/Bravo D. Bravo/Alpha E. Alpha/Bravo

E. Alpha/Bravo

Reflect on the strategic financial statement excel tool we reviewed and answer the following. If the market size is 100,000, penetration rate is 1% in month 3, average purchase price is $100, and 95% of sales are collected the same month in which sold, what are the collections for month 3? A. $95,000 B. 0 C. $50,000 D. $100,000 E. $9 million

A. $95,000

If a startup achieves its milestones over time while raising new rounds of financing, which of the following is likely to occur (assuming the macro environment is unchanged)? A. The startup's value will remain constant B. The startup will increase in value while diluting its founders' ownership C. The startup will increase uncertainty in its own future D. All of these correct E. The startup will decrease in value while diluting its founders' ownership

B. The startup will increase in value while diluting its founders' ownership

If a US 30-yr bond nominal rate is 3% and the U.S. 6 month T-Bill rate is 1%, what does the 2% difference represent? A. default risk premium B. inflation premium C. maturity premium D. liquidity premium E. all of these

C. maturity premium

Which of the following contributed to the demise of Silicon Valley Bank (SVB)? A. Decrease in startup funding in 2022, which led to fewer deposits B. Lack of planning for duration risk of bonds C. An increase in startup funding in 2020 and 2021, which led to increasing deposits that were invested by SVB into low yielding bonds D. All of these E. A rapid increase in interest rates in 2022 that lowered the value of low yielding bonds held by SVB

D. All of these

When reviewing your anticipated cash receipts and disbursements for next year, you see a maximum cumulative cash deficit of $200,000. Which of the following would be a prudent course of action. A. Hope you forecasts are wrong B. Collect more personal credit cards to fund any shortfall C. Double the price of your product to increase receipts D. Arrange a line of credit for your firm for at least $200,000 E. All of these are prudent actions

D. Arrange a line of credit for your firm for at least $200,000

If the Federal Reserve (The Fed) wishes to increase the money supply, which of the following actions would it take? A. Sell bonds on its own balance sheet to banks B. Turn on printing presses to print and give away money C. Raise discount rate D. Buy commercial debt from banks E. Increase taxes

D. Buy commercial debt from banks