Fi512 Entrepreneurial Finance
Assignment Chapter 1: Exercises/Problem #1 pp. 33-34 1. [Financing Concepts] The following ventures are at different stages in their life cycles. Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing. A. Phil Young, founder of Pedal Pushers, has an idea for a pedal replacement for children’s bicycles. The Pedal Pusher will replace existing bicycle pedals with an easy-release stirrup to help smaller children hold their feet on the pedals.
The Pedal Pusher will also glow in the dark and will provide a musical sound as the bicycle is pedaled. Phil is seeking some financial help in developing working prototypes. This is a company in the development stage. The founder, Phil Young, has a concept that he wants to try to develop and market. He is looking for financial assistance to develop his prototype. At this point of his business venture, he may need to ask family and/or friends for loans and/or possible liquidate some of his own assets to help pay for his project. B. Petal Providers is a firm that is trying to model the U. S. floral industry after its European counterparts.
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European flower markets tend to have larger selections at lower prices. Revenues started at $1 million last year when the first “mega” Petal Providers floral outlet was opened. Revenues are expected to be $3 million this year and $15 million next year after two additional stores are opened. Petal Providers is a firm that looks like it is entering the rapid growth stage. The company expects to increase revenues from $1million to $15million in 3 years after 2 additional stores open. Financing would be external, probably from second round financing. These finances would probably bee from business operations, suppliers, commercial banks, and nvestment bankers. Chapter 2: Exercises/Problem #2 A-C & E p. 70 2. [Financial Ratios and Performance] Following is financial information for three ventures: | VENTURE XX| VENTURE YY| VENTURE ZZ| After-tax profit margins| 5%| 25%| 15%| Asset turnover| 2. 0 times| 3. 0 times| 1. 0 times| * A. Calculate the ROA for each firm. * Venture XX = 10% * Venture YY = 75% * Venture ZZ = 15% * B. Which venture is indicative of a strong entrepreneurial venture opportunity? * I would think that Venture YY is because of its high after tax profit margins and its high asset turnover. * C.
Which venture seems to be more of a commodity-type business? * Venture XX because of its low after-tax profit and asset turnover rate. Its ROA appears to be dependent on sales of larger quantities. * E. Use the information in Figure 2. 9 relating to pricing/profitability and “score” each venture in terms of potential attractiveness. * Venture XX = 1. 33 * Venture YY = 2. 33 * Venture ZZ = 1. 33 Chapter 2: LearnRite. com Mini Case questions p. 74 A. Project industry sales for children’s software through 2015 based on the information provided above. $2. 85Billion B. Calculate the year-to-year annual sales growth rates for LearnRite. Optional: Estimate the compound growth rate over the 2011–2015 time period using a financial calculator or computer software program. ] Year 1 to 2 = 9. 6% Year 2 to 3 = 3. 13% Year 3 to 4 = 2. 19% Year 4 to 5 = 1. 81% C. Estimate LearnRite’s expected market share in each year based on the given data. Year 1 = 0. 1% Year 2 = 0. 7% Year 3 = 1. 8% Year 4 = 3% Year 5 = 4. 3% D. Estimate the firm’s net income (loss) in each of the five years. Year 1 = (-2. 7M) Year 2 = (-2. 12M) Year 3 = 93K Year 4 = 2. 34 M Year 5 = 3. 64 M E. Estimate the firm’s ROA beginning when the net or after-tax income is expected to be positive.
Year 3 = 20% F. Score LearnRite’s venture investor attractiveness in terms of the industry/market factor category using the VOS Indicator™ guide and criteria set out in Figures 2. 8 and 2. 9. If you believe there are insufficient data, indicate that decision with an N/A. 1. 75 G. Score LearnRite’s venture investor attractiveness in terms of pricing/profitability factors. Follow the instructions in Part F. 1. 25 H. Score LearnRite’s venture investor attractiveness in terms of financial/harvest factors. Follow the instructions in Part F. 1. 50 I. Score LearnRite’s venture investor attractiveness in terms of management team factors.
Follow the instructions in Part F. 2. 50 J. Determine overall total points and an average score for LearnRite as was done for the Companion Systems Corporation in the Appendix. Items where information is judged to be lacking and an N/A is used should be excluded when calculating an average score. 1. 63 K. Provide a brief written summary indicating how you feel about LearnRite. com as a business opportunity. This is not an impressive venture. Its Industry/Market rates medium, its Pricing Profitability is rated low, its Financial/Harvest is low, and its Management team is rated high.