Question 2

The RRK buyout fund is considering an investment in a fertilizer distribution center. The stock currently trades at $22 per share with 150,850,000 shares outstanding. RRK offers $27 per share, 75% of which is funded by high-yield debt securities. The fund believes it can work with management to grow the firm at a rate of about 6% while also retiring half of the high-yield debt by an expected exit in year 6, reinvesting any profit in growth and debt reduction.

What is the expected IRR of this investment?

Consider a start-up that is valued at cost throughout the early stages of its life. Required: a. Round A: Cyprus Ventures invests $277,965, bringing the post-round valuation to $870,000. What are the ownership percentages for the founder and Cyprus Ventures, if all voting rights are equal? b. Round B: A syndication of Cypress Ventures, Specific Pacific Management, and Mountainhome Capital Group invests $855,000 each. Now determine the ownership for each party assuming the start-up is valued at cost. c. What would be the minimum necessary voting rights for the founders to maintain control through both rounds of financing? (Control is defined as greater than 50% ownership, with percentages rounded to whole numbers.) Complete this question by entering your answers in the tabs below. Round B: A syndication of Cypress Ventures, Specific Pacific Management, and Mountainhome Capital Group invests $855,00 each. Now determine the ownership for each party assuming the start-up is valued at cost. Note: Do not round intermediate calculations. Round your answers to 2 decimal places