_\\spring CUTE A blackboard . chapman . edu Problem 2 | 24 points | Parts & ) through {\\ roblem 2 / continued !* Frito Enterprises is & private Equity firm and has the following equity structure :` Shares & ) 16 points ) Frito decides it will raise the* $ 2. 7 million though one year debt financing instead of the venture* Series !` L, OOO,OOD capital (Series Dj financing . ASSUME the pre- money valuation of the firm in part all is the value of the* Series E Equity . If the corporate tax rate is AOK , the Expected casts of financial distress are $4 million with a FOR` {eries [ 375, 000 probability of occurring , and the debt cast is the risk free rate of 5` ( with a debt beta of zero) - what is the private Equity valuation Fer share and the value of the founder's [ Fritz's ) stake (Series A ) worth after The company plans to do another round of financing ( Series ! ) and issue additional shares to a venture capital firm* the debt issue ? ( Hint : assume the risk free rate to discount the financial distress costs ) . or $2. 7 million . The venture capital firm will own a 15 #^ stake after this round of financing .* * ] 12 points ; What is the pre money valuation of the firm ?" 6) 12 points ; What is the past money valuation of the firm ? What is the share price for this round of financing ?` ` ) 12 points ; What is the founder's ( Frito's ) stake [Series Aj worth and percentage ammership after this round of funding ?` *) 16 points ; Frito is considering adding debt to its capital structure . The company is a biotech firm that* specializes in research for treating tumors in dogs. Using Your knowledge of the Tradeoff Theory of Debt and understanding of financial distress casts of different types of firms , advise Fritt on how it should view $1 15 points ) While still private , Frito would someday like to be a public firm and pay dividends once they are* leverage and it's optimal capital structure .* Established , reduce their R&D costs and have revenue generating patent protected drugs . Explain The* Clientele effect Frito should consider regarding dividends . Is Your explanation consistent with Miller and MadiEliani's dividend preference theory ?"