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ALI Technologies Inc. is a medical information technology company that develops filmless diagnostic equipment for hospitals and clinics and is world leader in this field. An offer to acquire the company has been presented and the chief executive officer and the board of directors must determine if the offer is fair to the company shareholders and in the best interests of the company.

Excel spreadsheet with base case data for teaching note 8B04N03.

Excel spreadsheet with downside data for teaching note 8B04N03.

Two experienced venture capitalists have decided to create a new venture capital fund. They have requested $70 million as a lead order from National Bank Financial Inc. and are looking to raise $110 million in capital to form the fund. However, there were several unresolved issues: a main issue was the strategy for deployment of the fund, as well as type of investment, average size of investment, number of concurrent investments, geographic and industry focus, timing and fund management issues such as staffing and governance structure. The partners must develop the investment strategy in order to prepare the equity fund offer memorandum to present to potential investors.

CNS is a small biotech company. The founder of the company is deciding if it's worth applying for phase I approval that will allow the company to continue its research. He must determine the value of the research. Using the traditional DCF valuation method, he is not sure if this captures all of the value of the research and must decide if either the Black-Scholes or binomial model would more accurately determine the value.

This technical note explains the functioning of the venture capital industry in Canada in 2004. Venture capital, is a segment of the invesment community called private equity. Firms in this industry deal primarily with debt and equity investments in private, non-publicly listed companies. The note defines industry terminology and explains the investment process.

A merchant bank is considering the financing of a leveraged buyout of a private jewelry manufacturer. A representative from the bank must determine what risks are associated with this investment and if the financing fits the banks investment criteria. If he decides to invest in the jewelry manufacturer, he would need to structure an appropriate deal to be competitive with other merchant banks. An Excel spreadsheet with the financial model is available, product 7B04N003.

Excel spreadsheet with solutions for teaching note 8B02N19.

Excel spreadsheet with solutions for teaching note 8B03N01.

The vice-president of a venture capital fund is reviewing the due diligence package on a deal that involved financing the merger of two operating companies. He must assess the merits of the deal and prepare a term sheet outlining a proposed financing package for one of the potential investors.

The account manager at a national bank is reviewing the file of a client - Northstar Aerospace - that wants to renew and increase its line of credit and term loan. Northstar Aerospace is a public conglomerate that had operations in four areas: semiconductors, pumps, aerospace and industrial technology. After a number of years with moderate success, the company reduced its diversity and focused on the aerospace industry. Most of the company's revenue comes from military contracts; however, due to the manufacturing cycle the company was experiencing a backlog of orders worth $260 million. The account manager must size up the business and project the balance sheet and income statement for the upcoming year to decide whether or not to approve the line of credit and if so, what the terms should be.

Fashion Hut is a chain of designer clothing stores. Fashion Hut's owner has received an offer for the sale of her enterprise. She must decide whether to accept the offer or continue to develop the business for possible future sale. An Excel spreadsheet is available for students to perform sensitivity analysis, product number 7B03N001, and an Excel spreadsheet that assists the instructor, product number 5B03N01.

Two managers attending an executive education course attempt to develop a cost of capital estimate for a leading telecommunications company. The two managers are confused about the costs of various sources of capital, the calculation of the overall corporate cost of capital, and the appropriate use of the hurdle rate. They must investigate the concept of cost of capital, review historical data on risk premiums, develop a process for estimating the various components of the cost of capital, and determine the corporate cost of capital.

The accountant for Palmer Limited, a sheet metal sub-contractor, has been asked to provide a monthly cash budget along with the projected income statement and balance sheet for her client. The request came about because the banker is concerned about whether Palmer Limited can repay its loan.

A scientist at a well-known university has been working for several years on the development of a drug that is a treatment for a particular type of cancer. He has successfully completed all pre-clinical trials and has filed an application for an investigational new drug. Once the application has been accepted by the Food and Drug Administration, the scientist plans to embark on a series of clinical trials. Although his work to this point has been financed by research grants and personal funds, he now needs to obtain more substantial financing from a venture capitalist. However, the scientist does not know what his fledgling company is worth.

This note provides an abbreviated discussion of the essential elements of the term sheet provided by a venture capitalist to a proposed investor. A sample term sheet is included.

This note provides an abbreviated discussion of the essential elements of the term sheet provided by a venture capitalist to a proposed investor. A sample term sheet is included.

Pharmex Industries is a high-growth pharmaceutical company that has aggressively expanded through acquisitions of financially sound firms. The chief financial officer must decide if their latest potential acquisition, the privately owned Formulex Group of Companies, is strategically attractive, and he must also determine the value of the company and how to finance the acquisition.

Innomedia Logic Inc. produces and distributes voice over Internet protocol hardware. An increasing demand for this technology and the entry of other companies into the sector have created a highly competitive market. Despite these challenges, Innomedia Logic has grown to a successful operation in just a few years and has projected substantial revenue increases for the next two years. The president, and major shareholder, has received an unsolicited offer for 100 per cent of the company's equity. He must consider how an exit strategy will affect the other seven shareholders and determine whether he would receive greater value if he sells now or if he should continue to grow the company and contemplate a sale in the future.

A biotechnology and drug research company has an anti-cancer compound that is ready for further development. The company faces two options. It can form a licensing agreement with a large pharmaceutical partner that would fund the necessary clinical studies and bear much of the risk. The pharmaceutical company would assume an equity position within the drug research company and would also receive licensing rights to any compounds that successfully result from the research. The other option is to create a spin-off company with venture capitalists. The stand-alone company would be able to focus on realizing the potential of the new compound, but the drug research company would lose majority control. The vice-president of business development must decide how to proceed in order to maximize value to his company and to the investors.