The inventor of Subeo, a UK company that was formed in 1993 to develop small state-of-the- art underwater vehicles, is looking for a substantial investments from the Dragons. You will see in the video that a heated discussion arises about the value of Subeo's assets. Ultimately, the asset debate and related firm value leads to an unexpected outcome for Subeo. We will explore the accounting for assets and explain the impacts on profit and cash flows from depreciation methods, disposals and impairments of assets. When watching the video (2 parts), please answer the following questions and useDragons Den Subeo (xlsx)for brainstorming.
Dragon's Den video(13:51 minTranscript Part 1,Transcript Part 2)
1. Based on the proposed deal, at how much do the inventors value their company?
2. What are the company's projected unit sales, dollar sales, expenses, and earnings?
3. Record the effect of past and expected transactions on B/S, I/S and SCF. Specifically, prepare the company's B/S, I/S, and SCF right before and after the proposed deal. Prepare the company's B/S at the end of year 4. Could you justify alternative B/S? The Dragons argued about assets on the B/S. What (if any) assets will be there?
4. Suppose the company will generate $800,000 net profit in years 3,4,5, etc. Suppose the cost of equity capital is 19%. What is the value of the company?
5. Why do you think the dragons decided not to invest into the company?