A VC firm, Everest Partners, is considering making an investment to a start-up company, OutReach Networks. OutReach currently, has 1000 shares, and 70% of the shares are held by the founder. As a tech company in early stage, OutReach needs $50 million from VC as first-round financing. The target rate of return that the VC firm requires is 50%, and the expected horizon of investment is 7 years. The projected EBITDA of OutReach at year 7 is $350 million. By examining the public firms in the market, the VC firm finds a comparable firm to OutReach that does business in the same industry. The comparable firm currently has a market capitalization (equity value) of $2,000 million, $700 million worth of debt outstanding, and EBITDA of $300 million.

a. What is the EV-to-EBITDA ratio of the comparable firm?

b. Assuming a 20% liquidity discount, what is the Exit Value of OutReach (in millions) in Year 7? (Hint: if your answer is $5,000,000, enter 5 in the answer box.)

c. What is the postmoney value of OutReach (in millions) today?

d. How much ownership of OutReach the VC firm should ask for to make the investment? (Hint: if your answer is 12.34%, enter 0.1234 in the answer box.)

e. Suppose that the founder of OutReach wants to negotiate for a lower equity stake for VC in exchange for its investment. Which of the following argument(s) can the founder use to achieve his goal?

A. The comparable firm's equity is overvalued.

B. The projected EBITDA of OutReach in year 7 is too high.

C. The target rate that the VC uses is too high.

D. The liquidity discount should be higher than 20 percent.

f. If the VC agrees to invest $50 million in exchange for 30% of firm's equity after the negotiation, what is the founder's ownership after VC investment?