solution

Entrepreneur with zero initial wealth has a project with a market value (MV) of 400. int rate=0.2

Assume “PCM” so NO DIFFERENCE BETWEEN DEBT AND EQUITY, also assume no taxes

Entrepreneur needs 250 TL at t1 to implement the project. Rana gives our entrepreneur 250TL and gets a certain number of shares in return

Suppose 400 shares are issued which represent this MV (=market value)

a) What will be the price of 1 share, s(1)=

b) How many shares does Rana receive?

c) What percentage of the total market value of 400TL is contributed by Rana?

d) What percentage of the total market value of 400TL is contributed by the entrepreneur?

e) How many of the 400 shares does the entrepreneur deserve?

f) What is the value of the project for the entrepreneur?

Solution:

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