Wednesday 17 May 2017

What share in equity of Enzy will Gamma ask for

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Project Report and Thesis contact
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ARAVIND – 09901366442 – 09902787224


Project Management

Case Studies
CASE STUDY (20Marks)
You have been assigned to a project risk team of 5 members. Because this is a first time your organization has formally set up a riskteam for a project, it is hoped that your team will develop a process that can be used on all future projects. Your first team meeting isnext Monday morning. Each team member has been asked to prepare for the meeting by developing, in as much detail as possible,an outline that describes how you believe the team should proceed in handling project risks. Each team member will hand out theirproposed outline at the beginning of the meeting. Your outline should include but not be limited to the Team objectives, process forhandling risk events, Team activities, Team outputs.

Answer the following question.
Q1. Project risks can be eliminated if the project is carefully planned, Explain?
Q2. What is the difference between avoiding a risk and accepting a risk?
Q3. How you face the Schedule risk?
Q4. Explain the term RBS?

CASE STUDY (20Marks)
N Electricals Ltd. is evaluating a capital project requiring an outlay of Rs 12 million. It is expected to generate an annual cash inflowof Rs 3 million for 6 years. The opportunity cost of Capital is 20 per cent. N Electricals can raise a term loan of Rs 8 million for theproject. It will carry an interest rate of 18 p.c. and will be repayable in 8 equal annual installments, the first installment falling due atthe end of the second year. The balance amount required for the project can be raised by issuing external equity. The issue cost isexpected to be 12 per cent. The tax rate for the company is 30 per cent.
Answer the following question.
Q1. What is base­case of NPV?
Q2. What is adjusted cost of capital?
Q3. What is adjusted NPV if the adjustment is made only for the issue cost of external equity?
Q4. What is the present value of the tax shield on debt finance?

CASE STUDY (20Marks)
Praveen B a Ph D in molecular biology, is working as a professor in the International Science Institute. Based on this research work,he has developed an enzyme which he believed has commercial potential. Praveen B has set up Enzy Laboratories to commerciallydevelop the product. Enzy Lab. Has approached Gamma Venture Capital with a funding request for Rs 200 million by way of equity.
Gamma requires a rate of return of 30 per cent from its equity investment in Enzy and its planned holding period is 5 years. Enzy hasprojected an EBITDA of Rs 300 million for year 5, which Gamma considers to be credible. Gamma believes that an EBITDAmultiple of 6 for year 5 to be reasonable. At the end of year 5, Enzy is likely to have a debt of Rs 200 million and a cash balance ofRs 80 million.

Answer the following question.
Q1. What share in equity of Enzy will Gamma ask for?
Q2. What factors generally influence valuation of VC deals?
Q3. What incentive mechanisms are usually incorporated in VC deals?
Q4. Discuss the considerations an entrepreneur like Praveen B should bear in mind while approaching a VC Fund?

CASE STUDY (20Marks)
Microelectronics Corporation is currently at its target debt equity ratio of 5:1. It is considering a proposal to expand capacity, whichis expected to cost Rs 500 million and generate after tax cash flows of Rs 130 million per year for the next 8 years. The tax rate forthe firm is 30 percent. Mahesh the CEO of the company, has considered two financing options. a) Issue of equity stock. The requiredreturn on the company’s new equity is 20 per cent and the issuance cost will be 12 per cent. b) Issue of debentures at a yield of 13percent. The issuance cost will be 3 per cent.

Answer the following question.
Q1. What is the WACC for Micro­electronics?
Q2. What is Microelectronic’s weighted average flotation cost?
Q3. What is the NPV of the proposal after taking into account the flotation costs?
Q4. Do you have any suggestion to Mahesh?

Assignment Solutions, Case study Answer sheets
Project Report and Thesis contact
www.mbacasestudyanswers.com
ARAVIND – 09901366442 – 09902787224




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