15. GS is a private firm that was started by PK for developing specialized software for greeting card companies. PK had invested $100,000 in the company. One year later, a venture firm Big Bucks offers PK $1 million for a twenty percent stake in the company. What is the pre-money value of GS? [Reference: Mod 5, Valuation of Early Stage companies VC mini-lecture]

A. $0.9M

B. $3.0M

C. $4.0M

D. $5.0M

16. Pentos International (PI) is in the heavy equipment industry. The debt rating for PI is AA, and the yield spread on AA-rated bonds for five-year maturity is 3% per year. The yield on a five-year treasury is 4% per year. The company recently announced that it would issue convertible bonds. The bonds will have no coupons and will have a maturity of five years and will pay $1000 at the end of five years. The bond can be converted to 20 shares of PI stock at the end of two years. The price of PI stock is $35. A call option on PI stock with an exercise price of $50 and maturity of five years is priced at $18. What is the fair value of the bond? Use simple compounding and ignore any dilution effects. Hint: Convertible bond price = (bond Price without options) + (Convertible Option) [Reference: Mod 5, Raising Capital-Convertibles mini-lecture ]

A. $1000

B. $712.99

C. $1072.99

D. $1100