Using Excel, create two scenarios (high valuation vs. low valuation scenarios) for the following items:

(1) Value of Warrant

(2) Total Cost of Venture Debt

High Valuation Scenario for Value of Warrant ad Total cost of Venture Debt

Low Valuation Scenario for Value of Warrant ad Total cost of Venture Debt

Hint to Question 5: Please note that "Total Cost of Venture Debt" = "Total Interest Paid" + "Extra interest earned" + "Value of Warrant", where

"Total Interest Paid" is the sum of all interest payments;

"Extra interest earned" is the sum of all interest earned on a larger cash balance from borrowed money.

"Value of warrant" is calculated based on the Black-Scholes Option Valuation formula, because the calculation of warrant is basically the same as the calculations of option value.

You can use "Option Value/Black-Scholes Model" to calculate the option value (call option or put option) in Excel (you can find this Excel file in the file posted titled Bodie - Valuation.