Valuation C - Evaluating Investment Offers - Kevin Southwest Ventures is an entrepreneurial firm that manufactures RFID chips for supermarkets. You are helping Pat, the CEO of Southwest Ventures to evaluate various investment offers. Pat already has an offer on from a VC for investment of $0.5million in return for a 35% equity stake. However, the VC seemed unwilling to offer his time and expertise to grow and develop the business. Pat wanted someone to invest "smart money" in Southwest ventures where the investor puts in both money and effort to make the business successful. She decided to pitch her company to investors in Shark Tank. She did a good job of pitching her idea and asked for $0.5m for 30% equity stake, with implied value of the company at $1.67m. Kevin was the only shark who made her an offer. He wanted 70% equity stake for $0.5 million. Pat countered by offering 50% for 0.5m. Kevin explained that he has good contacts in manufacturing industry and he has on average reduced cogs of companies he has invested in by 20% and he is confident he can do the same for Southwest. Kevin, countered by offering to take 60% equity stake and said that was his final offer. Pat expressed concern about having the control in decision making of the firm by giving away 60% of equity. Kevin assured her that as long as she is meeting the projections she will retain the majority vote in all decisions. Pat pondered over the offer and said she needs to consult with a friend. Pat calls you in middle of her pitch at Shark Tank to consult if she should accept Kevin' s offer or stick to the VC offer. What will you tell her? Salient financial data with updated income statement is shown in the Exhibit 1. Exhibit 1: Questions for Analysis: 1) Develop excel model to analyze Kevin's offer. What will you recommend and why? Note: The cost savings from Kevin are already factored in the financials in exhibit 1. 2) Challenge Questions: Assume Pat is able to convince both Kevin and Robert to invest together. Each invests $0.25 million. What is the most amount of equity Pat will be able to offer