Practice Problems Part 1.

You are given the following information:

Starting Cash Position: $1,000,000.

Monthly Employee Salaries: $200,000

Monthly G&A Expenses: $20,000

Current Monthly Revenue: $100,000

Cost of Goods Sold (COGS): 20% of total revenue.

Calculate the monthly burn rate.

How long of a runway does the company have?

In years 1-5 the company increases revenue by 50% each year. COGS remains steady at 20% of total revenue. Assume the other expenses previously given remain constant.

In what year will the company break-even or better?

How much cash does this company need to raise to cover all the losses before it breaks-even?

You are the manager at a venture capital fund thats considering investing in a company. Consider the following information:

Cash Flow Years 1-3: $0

Cash Flow Year 4: $1,000,000

Cash Flow Year 5: $3,000,000

Cash Flow Year 6: $4,000,000 (this is also the terminal year)

You are seeking a 40% return on your investment with a 5 year investment window.

Discount Rate: 10%

Growth Rate: 5%

Using the discounted cash flow method, what is the present value of this company?

If you are making an investment of $1,000,000, what percentage of the company will you receive in ownership in exchange for your investment?

A VC fund is considering an investment with a 5-year time to exit. Consider the following information.

Current Income (Time 0) is are $2,000,000.

The Growth Rate is 6%.

Time to Exit is 5 years.

A comparable Price/Earnings Ratio is 20.

Calculate the value of the company using the Venture Capital Method.

Assume Current Income of $2,000,000 is the Base Case scenario for the company. The Best Case assumes sales of $5,000,000. The Worst Case assumes sales of $0. Because this is now a more mature company, you apply the following probabilities:

Best Case: 20%

Base Case: 50%

Worse Case: 30%

Calculate the present value of the company using the First Chicago Method.