You are the Founder and CEO of STYLE, a women's shoes, handbags and belts company. You design your own products and sell a) Wholesale to department stores and b) Directly to consumers over the internet. You operate profitably for over three years having financed your company with friends and family and your own capital. You are looking to ramp up production, streamline the supply of raw materials and engage into a profit sharing/co-marketing agreement with

Internet Direct - to - Consumer platforms such as Amazon, Shopify, etc. You estimate that you need to raise a minimum of $5.0 million to realize your immediate growth plan. Your last year financial results are as follows: ASSETS $2.2 M Designs (600,000), Equipment (400,000), Operating Long-Term Leases (400,000) Inventory ($300,000), Receivables ($250,000), Cash ($50,000), Goodwill (200,000) LIABILITIES Private Loan (250,000), Payables (50,000) EQUITY $1.9 M SALES $2.25 M, COST OF GOODS SOLD$750,000, SGA $500,000 EBITDA $1.0 M Interest $15,000 Depreciation 35,000 TAXES $250,000 NET INCOME (Earnings) $700,000 (1 Point) a) What financing options do you believe are available to you? b) How are you going to approach a venture capital (equity) investor versus a commercial bank? You can assume that last year S&P500 returned 12%, 5yr Treasury Yields are at 1.5% and that the women apparel industry sensitivity to S&P500 is 1.4. What is the minimum annual rate of return that a private equity investor is likely to demand? Why? (1 point) Assume that after accepting a new investment of $3.0 M, you can grow earnings for 5 years at a CAGR=8% while the residual value of STYLE beyond year 5 in todays dollars is $750,000. c) What percentage in your company the $3.0 M investment is likely to represent? d) What is the current value of STYLE valued at 10 times next years Forward EBITDA? e) What is your return on equity (ROE) upon selling 100% of the company at this valuation assuming capital gains tax of 15%? f) What is the likely ROE for the new company owner at year 6 if the original sales projections prove accurate? (2 points) Assume that you actually structure a deal to sell 60% of the company to an SME Private Equity Fund for $1.5 M. The Fund is agreeing to retain you as the CEO on the condition that you agree to pay them an annual common dividend of $150,000 and take on $500,000 of additional debt structured as follows: 5yr Bank Loan up to 2x Next Years EBITDA at a rate of 5.0% Remaining in a 5yr subordinated debt issued by the PE fund at a rate of 8.0%

g) What would be your return on equity (ROE) upon selling a 60% stake in the company? h) Calculate the WACC for the company Assume corporate tax of 25% i) What is the likely ROE of the new majority owner one year after taking control of the company? j) Calculate Leverage Ratio (Debt/Equity), Debt-to-EBITDA and Interest Coverage ratios of the company one year after the transaction is consummated.