Horus Inc. has just issued a patent on a new solar panel technology. The company wants to take advantage of the boom in the development of renewable energies to raise money and develop a marketable product. The key aspects of the business plan are summarized below - Development cost: $8 Millions (to be committed upfront). - Estimated time to market (length of time until the product can be marketed to customers): 5 years. - Technological risk: the probability that Horus fails to develop a marketable product is 40%. - Valuation: the expected market value of Horus if and when it can start marketing the product is $150 million. - Market information: risk-free rate 3%, market risk premium 6%. Horus was specifically created to develop this product and has no other lines of business.

1. The company currently has 1,000,000 stocks outstanding. A VC firm offers to inject the $8 millions initial funding in exchange for 150,000 newly issued stocks. Assuming that this equity issue is correctly priced, what is the systematic risk of Horus which is implicit in this offer? (10 points)

2. Suppose now that the of Horus is 0.8. You are the sole shareholder of Horus, and you have on your desk a term sheet (contract) proposition from the VC fund MBA Partners, who agrees to provide $8 millions in exchange for 150,000 new shares. You are also considering an alternative offer from Energy Venture. Energy Venture is a VC fund dedicated to investments into the energy industry. On top of a $8 millions investment, Energy Venture offers its expertise and network to accelerate the commercial development of Horus. In particular, Energy ventures would shorten time to market from 5 to 3 years. However, Energy wants 200,000 stocks. You have to choose one of the two offers, which do you pick? (15 points)