• 1. An entrepreneur needs $500,000 to fund his idea. He has registered a company and needs your advice to know how many percentages of his companys ownership is required to be given to the investors to be able to raise this money (Bank loans are not going to be granted now).
• Investors Required rate of return per year is equal to 100%
• Holding period of 10 years
• Estimated EBITDA of firm in year 10 to be $60 Million, with an estimated EBITDA multiple of 15, cash of $10 Million and interest-bearing debt of $25 Million.

(1.5 marks for future hoped for investment value in business, 1.5 marks for future equity value of business, 1 mark for percentage of ownership)

4. Marks total)

3.2 How much is the post money and pre money value for part 1?

4. marks)

3.3 Explain in detail why issuing convertible bonds, compared to ordinary shares, reduces the required rate of return by venture capitalist and private equity investors? (3 marks for at least two well explained reasons including the effects on beta, and risk perceptions of investors)