Beruflich Dokumente
Kultur Dokumente
Pedagogical objectives
Understanding that different parties to a transaction can have different cash flow projections, and how these different projections can lead to different subjective optimal decision paths; Getting an initial introduction to the market for outside funding, and the interplay between venture capital firms and entrepreneurs; and Developing an initial understanding of the separation of ideas and capital, and what this means for innovation in the economy
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Demand varied dramatically during the day and week (exhibits 3 and 4), which made the need to optimize capacity utilization paramount.
The key to profitability in PlanetTrans employee model was labor cost
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The problem
The founder, Seth Riney, is evaluating outside funding options in order to expand the company, and has met local venture capital (VC) firms. Both agree
Three particular expansion locations: Denver, Chicago, or New York. Estimated funding needs: $1,250,000 for Denver, 2,750,000 for Chicago, and $4,250,000 for New York City. Future capital expenditures were estimated at 5% of sales, depreciation was estimated at 3% of sales, and the change in NWC was estimated at 1% of sales, per year.
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The problem
VC: Equity capital provided to a promising new business is called venture capital. Note that the VC is planning on taking an equity stake. The concern of Mr. Riney: whether the dilution he would have to undergo in order to accept a substantial capital investment is worth the added upside to the company that both he and the VCs envision.
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Rineys discount rate is 25% FCFs from 2009 to 2018 and PV (organic) = 3,126,496
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PV of firm
PV of firm (organic)= PV of 2009-2018 FCF + PV of terminal value = 3,126,496+863,986 = $3,990,482 PV of firm (Denver) = 7,816,239 +2,159,965 = $9,976,204 PV of firm (Chicago) = 9,018,738 + 2,492,267 = 11,511,005 PV of firm (New York) = 12,024,984 + 3,323,023 = $15,348,007.
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VCs projections
The VC is less optimistic about the near term growth rate of sales, and believes that the growth rate will be 5% from 2009-2018, in addition to being 5% from 2019 onward. The VC is somewhat more diversified than Riney, and uses a lower discount rate of 20%. The VC has lower expectations of PlanetTrans ability to generate sales and profits in each of the four strategies.
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Solving for the shares the VC and Riney will require to expand
In order for the VC to agree to fund any of PlanetTran expansion strategies, the VC must receive NPV>=0 for the given strategy.
Required VC minimum share *VCs PV cost of expansion to VC = NPV =0 Rineys share will be at most = 1 required VC min. share Value to Riney = Rineys share * Rineys PV
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Value to Riney
Stragegy Funding need VC' PV Riney's PV VC's required share share to Riney Value to Riney Chosen strategy Organic 0 3066667 3990482 0 100.00% 3990482 Denver 1,250,000 4933333 9976204 0.253378395 0.746621605 7448449.437 Denver Chicago 2,750,000 6866667 11511005 0.400485417 0.599514583 6901015.357 NYC 4,250,000 5500000 15348007 0.772727273 0.227272727 3488183.409
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Dunne et al. (1988): survival rate in 5 years is 38.5% Popkin and Kirchhoff (1991): survival rate in 2 years is 76.9%, and survival rate in 10 years is 34.4%.
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