1 What is a systematic liquidation of a venture? What are some of the advantages and disadvantages of a systematic liquidation?

2 ACE Corp was formed five (5) years ago by the original founders and some venture capitalists (VC) with five million shares, three million held by the VCs priced at $2.50 per share and 2 million held by the founders priced at $0.50 per share. ACE estimates its free cash flows that will be available to the enterprise next year at $5,200,000. Since the venture is now in its maturity stage, ACEs free cash flows are expected to continue to grow at a 6% annual compound growth rate in the future. A weighted average cost of capital (WACC) for the venture is estimated at 15%. Interest-bearing debt owed by ACE is $17.5 million. In addition, the venture also has surplus cash of $4 million.

a. Based on the above information, estimate the current total value of ACE Corp.

b. What would be the value of the ACEs equity?

c. How much of the value of ACE would belong to the VCs and how much to the founders?

d. How much would be the per share value of ACEs equity?

e. What would be the percentage gain on VCs investment

f. What would be the percentage gain on founders investment ?

g. What is the internal rate of return on the founders investment?

h. What is the internal rate of return on the VCs investment?

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