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Examen Cases in Corporate Finance 2020 (Master TEW UGent)
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Exam 2020: questions answers Cases in Corporate Finance 2020 (Prof. Rudy Aernoudt) Master TEW - Corporate Finance I achieved 20/20!
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Permutation 3Exam Cases Corporate Finance – Prof. R. Aernoudt - 04/06/2020
Case NV Watchyou
Name: N°:
Read page 217 to 221. Read CAREFULLY the case first.
Only write on foreseen space. Rest will NOT be read!!
What happened to Watchyou. Due to the Corona-crisis, health and especially
health monitoring became a major issue. Value of health-related companies are
now estimated based on a sector multiplier on EBITDA being 12. And the turnover
had to be revised as the turnover forecasted in the business plan was now
considered too low. Year 1 was needed to do the investments as foreseen and ship
the products from China. But sales in year one are now estimated at 7500; in year
two, 20 000 and in year three 30 000. From year 4 onwards, the estimated sales
would be 50 000 units. Given the huge price flexibility, selling price remain at 5
euro. To launch fast, 10 000 euros extra-budget, will be foreseen for promotion
budget for the first year. All other costs remain the same except for the euphoric
founders who wants to increase their initial salary requests by 50%. Both VC’s that
were in the running didn’t want to follow what they called the hubris-attitude of
the founders and they withdraw their proposal.
The business plan (see p. 218) had to be completely revised and a new VC had to
be convinced. The healthy bastard, a Chinese-owned funds, made an offer they
couldn’t refuse. To cover the financial needs, they proposed:
- 100000 through equity-financing with a desired return of 45%
- Rest as non-convertible mezzanine with a 15% i-rate, payback after 5
years
An EU-based seed fund, the hedging vultures, fund was interested as well. They
convinced a bank to finance the stock. The bank accepts to finance an amount
equal to 70% of the initial stocks with a pledge on the business premises as
collateral (through irrevocable letter of credit) and at an interest rate of 5 %; this
on top of the overdraft (cash credit) of 10 000. The hedging vultures would cover
the remaining financial needs at a desired return of 45 %.
All money is paid upfront.
Good luck! Prof. R. Aernoudt
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