APEX INVESTMENT The Case Solution
Question 5
The total enterprise value of Access-line is 699.62. We have taken the growth rate of 5%and the terminal value is 624.6514. We have taken the cost of capital for this calculation from assumptions table i.e. 14.50%. The outstanding shares are taken from the Optimal warrant Policy in order to evaluate the minimum value generation of the cash flows. The outstanding shares was 13001256 and share price accordingly was $53.81further refer appendix 5.
.Question 6
The deal is beneficial to Apex Company, as the Access-line Company is expected to achieve a huge growth in its sales revenue as given in the cash flow projections. Secondly, the company’s future prospects are lucrative for Apex. The estimated share value resulted in paying a premium towards the Access-line, which seems reasonable looking at the future profitability and growth potential of the company.
Question 7
To manage the firm Apex would be given the voting rights and also evaluating the accuracy of accounting and internal audits. Apex would be given the right give their opinion in important decision making. Apex would be on board while making decisions for future. Apex would be involved while making decision regarding capital investments and capital structure.
Appendices
Appendix 1
| Valuation- Warrants are Not exercised | |||
| Series A | |||
| Price | $7 | ||
| Shares in # | Market Cap | Percentage | |
| Existing Investors (Common Class A&B) | 7931060 | $55,517,420 | 78.72% |
| New Investors (Series A preferred) | 0 | $0 | 0.00% |
| Management & Employees Shares | 2143846 | $15,006,922 | 21.28% |
| Total | 10074906 | $70,524,342 | 100.00% |
| Series B | |||
| Price | $8 | ||
| Shares in # | Market Cap | Percentage | |
| Existing Investors (Common Class A&B) | 8086099 | $64,688,792 | 62.74% |
| New Investors (Series A preferred) | 2220726 | $17,765,808 | 17.23% |
| New Investors (Series B preferred) | 0 | $0 | 0.00% |
| Management & Employees Shares | 2582047 | $20,656,376 | 20.03% |
| Total | 12888872 | $103,110,976 | 100.00% |
Appendix 2
| Valuation- Warrants are exercised | |||
| Series A | |||
| Price | $7 | ||
| Shares in # | Market Cap | Percentage | |
| Existing Investors (Common Class A&B) | 7931060 | $55,517,420 | 64.50% |
| New Investors (Series A preferred) | 2220726 | $15,545,082 | 18.06% |
| Management & Employees Shares | 2143846 | $15,006,922 | 17.44% |
| Total | 12295632 | $86,069,424 | 100.00% |
| Series B | |||
| Price | $8 | ||
| Shares in # | Market Cap | Percentage | |
| Existing Investors (Common Class A&B) | 8086099 | $64,688,792 | 54.31% |
| New Investors (Series A preferred) | 2220726 | $17,765,808 | 14.92% |
| New Investors (Series B preferred) | 2000000 | $16,000,000 | 13.43% |
| Management & Employees Shares | 2582047 | $20,656,376 | 17.34% |
| Total | 14888872 | $119,110,976 | 100.00% |
Appendix 3
| Exit Proceeds (if warrants exercised) | |
| New Investors (Series A preferred) | $15,545,082 |
| New Investors (Series A preferred) | $17,765,808 |
| New Investors (Series B preferred) | $16,000,000 |
| Total Exit Proceeds | $49,310,890 |
Appendix 4
| Optimal Warrant Exercise Policy - Exit Proceeds | |||
| Series A | |||
| Price | $7 | ||
| Shares in # | Market Cap | Percentage | |
| Existing Investors (Common Class A&B) | 7931060 | $55,517,420 | 63.07% |
| New Investors (Series A preferred) | 2500000 | $17,500,000 | 19.88% |
| Management & Employees Shares | 2143846 | $15,006,922 | 17.05% |
| Total | 12574906 | $88,024,342 | 100.00% |
| Series B | |||
| Price | $8 | ||
| Shares in # | Market Cap | Percentage | |
| Existing Investors (Common Class A&B) | 8086099 | $64,688,792 | 62.19% |
| New Investors (Series A preferred) | 333110 | $2,664,880 | 2.56% |
| New Investors (Series B preferred) | 2000000 | $16,000,000 | 15.38% |
| Management & Employees Shares | 2582047 | $20,656,376 | 19.86% |
| Total | 13001256 | 104010048 | 100.00% |
| Exit Proceeds | |||
| New Investors (Series A preferred) | $17,500,000 | ||
| New Investors (Series A preferred) | $2,664,880 | ||
| New Investors (Series B preferred) | $16,000,000 | ||
| Total | $36,164,880 | ||
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