Alum inc is a mature start-up that has raised ten rounds of funding. It just hit the first year of generating profits. Independent financial analysts forecast that going forward; Alum inc is expected to generate FCF of $1 Million in perpetuity at a growth rate of 5%. However, to achieve this perpetual growth, it needs to raise additional capital. The entrepreneur is planning to sell a 50% equity stake in the firm to raise additional funds. She is evaluating two options: 1) Raising another round of funds from a venture capital fund 2) Do an IPO and get listed on the stock exchange Assume that the Beta of publicly listed firms with comparable risk is 2. The Market risk premium (rm-rf) is 5%. The yield on a 10-year Indian government bond is 6%.

A. Estimate the market value of Alum inc.

B. The three VC founds Alum inc is in talks with are all undiversified firms focusing on the health sector. Consequently, they are worried about the idiosyncratic risk component of the firm as well. They use a different measure of risk beta (beta=3), which captures both systematic and idiosyncratic risk. How much would the VC funds be willing to shell out for a 50% stake in alum inc? What is the amount of capital that Alum inc can raise if these three VCs are its only options?

C. How much capital can alum inc raise by selling a 50% stake if it decides to do an IPO? (Hint: Investors in Public markets are well-diversified and will use a beta=2) Please provide detailed solution.