6. What percentage of common stock would you require to invest the needed $35 million? Would Dr. Aplin be willing to sell you this percentage ownership of AFC? 7. Now assume that the estimated terminal value growth rate is 15 percent, and the bank is only willing to loan the firm yo million? Under these conditions, what percentage of common stock would you require to invest $35 million? Would Dr, Aplin be willing to sell you this percentage ownership of AFC? 8. Use the multiple of earnings method to estimate the value of AFC's equity. As a first pass, use the average projected earnings over the first five years as the best estimate of earnings. Then assume the stock of publicly traded firms with somewhat similar technologies sells at an average of eight times earnings. 9. If you used the adjusted tangible book value method to value AFC, how would you determine the market value of the patent? Table 2 Projected Cash Flow Statements (In Millions) Year 1 Year 2 Year 3 Year 4 Year 5 $20 $53 $102 $129 10 65 $ 64 25 10 Sales Cost of goods sold Gross margin General/administrative expenses Debt service requirements Pre-tax earnings Taxes Net income Depreciation/amortization Terminal value Net cash flow Nollner iun $7 $ 15 6 116 $13 Table 1 Current Balance Sheet and New Capital Requirement Current Balance Sheet Capital Required For Venture (In Millions) Cash Patent $ 1,000 400,000 Purchase of Equipment Purchase of Land Construction Working capital Total Assets $401.000 Total requirement $ 1,000 Accounts Payable Loans from friends and relatives Total Liabilities Common Stock Additional paid-in capital 250,000 $251,000 100 149,900 Total Liabilities and Equities $401.000 6. What percentage of common stock would you require to invest the needed $35 million? Would Dr. Aplin be willing to sell you this percentage ownership of AFC? 7. Now assume that the estimated terminal value growth rate is 15 percent, and the bank is only willing to loan the firm yo million? Under these conditions, what percentage of common stock would you require to invest $35 million? Would Dr, Aplin be willing to sell you this percentage ownership of AFC? 8. Use the multiple of earnings method to estimate the value of AFC's equity. As a first pass, use the average projected earnings over the first five years as the best estimate of earnings. Then assume the stock of publicly traded firms with somewhat similar technologies sells at an average of eight times earnings. 9. If you used the adjusted tangible book value method to value AFC, how would you determine the market value of the patent? Table 2 Projected Cash Flow Statements (In Millions) Year 1 Year 2 Year 3 Year 4 Year 5 $20 $53 $102 $129 10 65 $ 64 25 10 Sales Cost of goods sold Gross margin General/administrative expenses Debt service requirements Pre-tax earnings Taxes Net income Depreciation/amortization Terminal value Net cash flow Nollner iun $7 $ 15 6 116 $13 Table 1 Current Balance Sheet and New Capital Requirement Current Balance Sheet Capital Required For Venture (In Millions) Cash Patent $ 1,000 400,000 Purchase of Equipment Purchase of Land Construction Working capital Total Assets $401.000 Total requirement $ 1,000 Accounts Payable Loans from friends and relatives Total Liabilities Common Stock Additional paid-in capital 250,000 $251,000 100 149,900 Total Liabilities and Equities $401.000
