Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are offered the opportunity of lifetime; a financially challenged property developer needs to borrow funds quickly to build a hospital in the emirate. He

You are offered the opportunity of lifetime; a financially challenged property developer needs to borrow funds quickly to build a hospital in the emirate. He is willing to double your money and pay you back in around 3 months. He is offering collateral of uncut diamonds, but the collateral will remain in the vault of a local jewellers. You dont believe that you will get your money back in 3 months but think that the developer will possibly pay you back in 12 months and most likely within 36 months. You are trying to decide if the return is worth the risk. You estimate the following probabilities (650 points):

Scenario Outcome Probability

1 100,000 Payback in 12 mos. 20%

2 100,000 Payback in 24 mos. 20%

3 100,000 Payback in 36 mos. 20%

4 250,000 of diamond in 48 mos. 20%

5 0 receive nothing. 20%

You are willing to offer 50,000 and will (hopefully) receive 100,000 upon payoff. You estimate the uncut diamonds are valued at 250,000.

(d)After repaying the balance of your borrowings, to your great surprise 100% of the 100,000 outstanding shares of the company that owns the uncut diamonds, Sparkles plc is transferred to your name. The diamonds need to be cut and polished. The cutting will cost around 55,000 and the polishing around 35,000. The investment bank organising the rights offer will charge Sparkles 10,000 in fees. You do not have any cash left to pay for the above expenses or buy additional shares via a rights offering. You want to maintain majority control (>50%) of shares outstanding and raise at least 25,000 from selling all of your rights, is this possible?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Venture Capital And The Finance Of Innovation

Authors: Andrew Metrick, Ayako Yasuda

3rd Edition

1119490111, 978-1119490111

More Books

Students also viewed these Finance questions