Samuel Kaplan stared at the proposal sitting on his desk from Thyestean Ventures outlining their proposed investment in Sky Air, a small, regional airline. Kaplan was somewhat disappointed in Thyesteans terms. The offering price, $6 million for a 30% equity stake in the company, seemed to be far too low.

In addition to his salary of $400,000 per year, Kaplan also had a company car and a company apartment. Sky Airlines had been consistently in the black since its incorporation. Profitability growth had slowed recently and even declined slightly in the last year, but Kaplan explained this as a temporary slowing of revenue growth and was confident that cash flow would continue to grow at its historical rate in the future.

After their due diligence, however, Stacy Simms, Thyesteans managing general partner, informed Kaplan that Thyestean would pay no more than $6 million for the 30% equity stake. Kaplan was distraught. He was certain that his company was worth more, but he did not know how to respond to Thyestean.

As Kaplan got up from his desk and walked through the door on the way to his car, he pondered his options. He could walk away and continue to manage the firm as he had for the past ten years. His second option was to come up with a new proposal for Thyestean that might generate a higher offer. He did not have much time to decide.

What would be the ideal solution to Samuel's problem?

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Sales $2,250 $4,500 $9,000 $15,000 $22,500 $30,000 $36,000 $42,200 $48,600 $53,000 Operating Expense $1,750 $3,500 $7,000 $12,250 $17.500 $22,750 $28,875 $33,250 $38,500 $43,750 |EBIT $500 $1,000 $2,000 $2,750 $5,000 $7,250 $7,125 $8,950 $10,100 $9,250 lin thousands)