Market Value and Equity
Not what you're looking for?
You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $30 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $2 million. Investors are willing to provide you with $2 million in initial capital in exchange for 50% of the unlevered equity in the firm.
Questions:
a. What is the total market value of the firm without leverage?
b. Suppose you borrow $1 million. According to MM, what fraction of the firm's equity will you need to sell to raise the additional $1 million you need?
Purchase this Solution
Solution Summary
In about 70 words, this solution briefly, but concisely discusses how to approach solving basic finance operations. The calculations are all given and are rather simple in nature. A brief description of the reasoning per each solution is also provided.
Solution Preview
a - Total Value of firm without leverage = 2/50% = 4 million
With the given information, as ...
Purchase this Solution
Free BrainMass Quizzes
Operations Management
This quiz tests a student's knowledge about Operations Management
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.