Deck 13: Entrepreneurial Finance, Venture Capita, Mergers, Acquisitions, and Corporate Control

Question 1

What is the maximum price Smart Products can pay for Snazzy Snaps?

A) $30,153,951
B) $69,090,200
C) $102,729,660
D) $48,257,950

Answer 1

$69,090,200

Question 2

Suppose Smart Products' stock price is $40 per share, and there are 12,000,000 shares outstanding. How many new shares must Smart issue to acquire Snazzy Snaps at the maximum price?

A) 6,534,325
B) 2,568,242
C) 1,727,255
D) 4,639,773

Answer 2

1,727,255

Question 3

Needsalift, Inc.
You are analyzing the potential acquisition of Nothing Better! Ice Creams, Inc. by your firm, Needsalift, Inc. The ice cream firm is a wholly owned subsidiary of Grand Lake Investments, which has set a firm selling price of $10,000,000. From your work you estimate that Nothing Better! will generate the following incremental cash flows for Needsalift:

To fund the $10 million price, Needsalift can use $2 million from internal sources (retained earnings) with a required return of 15 percent, while the rest would come from a new debt issue yielding 10 percent. Needsalift's tax rate is 40 percent.

-What is the value of the proposed acquisition to Needsalift?

A) $9,771,379
B) $10,666,344
C) $8,500,678
D) $10,596,175

Answer 3

$10,666,344

Question 4

Milner - Poudre
Milner Manufacturing plans to acquire Poudre Chemicals, by giving Poudre shareholders 1.75 shares of Milner stock per share of Poudre. There are 2 million shares of Poudre Chemicals outstanding, with a pre-merger-offer price of $25 per share, and Milner's pre-offer stock price is $16.50.

-What is the value of the transaction at the time of the offer for Milner Manufacturing?

A) $87,500,000
B) $33,000,000
C) $50,000,000
D) $57,750,000

Question 5

Smart Products
Suppose Smart Products has three divisions which contribute 40, 35, and 25 percent each to its revenues.

-What is Smart Products' Herfindahl Index on focus?

A) 1.0
B) 0.40
C) 0.345
D) 0.333

Question 6

Smith-Miler Merger
Smith Enterprises can acquire Miller, Inc for $250,000 in either cash or stock. Both companies are 100% equity financed. The synergy value of the acquisition for Smith is $35,000. Currently Smith has 25,000 shares outstanding which trade at $29 a share, whereas Miller has 15,000 shares outstanding that trade at $14 a share.

-What is the net value of the acquisition to Smith if cash is used?

A) $245,000
B) -$5,000
C) -$250,000
D) $5,000

Question 7

Smith-Miler Merger
Smith Enterprises can acquire Miller, Inc for $250,000 in either cash or stock. Both companies are 100% equity financed. The synergy value of the acquisition for Smith is $35,000. Currently Smith has 25,000 shares outstanding which trade at $29 a share, whereas Miller has 15,000 shares outstanding that trade at $14 a share.

-For Smith and Miller, what is the value of the post merger firm if cash is used?

A) $-5,000
B) $725,000
C) $720,000
D) $250,000

Question 8

3D Company generates 50%, 40%, and 10% of its revenues from unrelated product lines A, B, and C. What is 3D's Herfindahl Index?

A) 100%
B) 65%
C) 42%
D) 33%

Question 9

Pickswinners Venture Fund
Pickswinners Venture Fund invested $10 million five years ago in Robotronics Co. The fund received 6 million shares of convertible preferred stock, each of which can be converted into three shares of common stock. Robotronic is now set to complete an IPO, and its shares are being priced at $40 each. Pickswinners will convert its preferred stock to common at the IPO, and will sell its shares along with Robotronic. The investment banking firm handling the IPO will charge an 8% underwriting fee.

-If Pickswinners' common stock position represents 40% of Robotronics equity, how many shares are being offered in the IPO?

A) 15,000,000
B) 18,000,000
C) 25,200,000
D) 45,000,000

Question 10

Pickswinners Venture Fund
Pickswinners Venture Fund invested $10 million five years ago in Robotronics Co. The fund received 6 million shares of convertible preferred stock, each of which can be converted into three shares of common stock. Robotronic is now set to complete an IPO, and its shares are being priced at $40 each. Pickswinners will convert its preferred stock to common at the IPO, and will sell its shares along with Robotronic. The investment banking firm handling the IPO will charge an 8% underwriting fee.

-What proceeds does Pickswinners expect to receive?

A) $662,400,000
B) $220,800,000
C) $720,000,000
D) $552,000,000

Question 11

WIMMP Venture Capital
"Where Is My Money" Professional Venture Capital (WIMMP) made a $10 million investment in Bavarian Sausage Technology (BST) 5 years ago and in return received 2.5 million shares of convertible preferred stock that can be converted into 1.5 shares of common stock. After all stock has been converted BST will have 22.5 million shares outstanding. In addition, the company is planning on issuing an additional 5 million shares in an IPO.

-What fraction of BST's common stock will WIMMP own after the IPO?

A) 16.67%
B) 11.11%
C) 9.09%
D) 13.64%

Question 12

WIMMP Venture Capital
"Where Is My Money" Professional Venture Capital (WIMMP) made a $10 million investment in Bavarian Sausage Technology (BST) 5 years ago and in return received 2.5 million shares of convertible preferred stock that can be converted into 1.5 shares of common stock. After all stock has been converted BST will have 22.5 million shares outstanding. In addition, the company is planning on issuing an additional 5 million shares in an IPO.

-If the value of BST stock is $21.50 at the end of the first trading day, what is the value of WIMMP's investment?

A) $48.375M
B) $80.625M
C) $63.425M
D) $37.557M

Question 13

WIMMP Venture Capital
"Where Is My Money" Professional Venture Capital (WIMMP) made a $10 million investment in Bavarian Sausage Technology (BST) 5 years ago and in return received 2.5 million shares of convertible preferred stock that can be converted into 1.5 shares of common stock. After all stock has been converted BST will have 22.5 million shares outstanding. In addition, the company is planning on issuing an additional 5 million shares in an IPO.

-If BST's stock trades at $21.50 at the end of the first trading day, what is the annual return on WIMMP's investment?

A) 51.81%
B) 45.69%
C) 35.26%
D) 68.21%

Question 14

Which of the following statements is true concerning the term "venture capital?"

A) In the United States the term refers to all professionally managed, equity-based investments in private, entrepreneurial growth companies while in Europe the term refers to early-and expansion-stage financing.
B) In the United States the term refers to all professionally managed, equity-based investments in private, entrepreneurial growth companies while in Europe the term refers to later-stage financing.
C) In Europe the term refers to all professionally managed, equity-based investments in private, entrepreneurial growth companies while in the United States the term refers to early-and expansion-stage financing.
D) The terms refer to the same thing in both Europe and the United States.