Finance

Student name: _____________________________________________________

PART A. Read the article: “Silicon Valley Adjusts to New Reality as $100 Billion Evaporates” and answer the following questions.

1) WeWork postponed its IPO and the valuation of the company plunged from $47B to $8 billion, describe all the parties/agents/stakeholders that were affected by this massive change in valuation and how they were affected.

2) How the plummeting values of the unicorns can be explained? Why were they value higher just a couple of months ago and now they are value lower? (think about what we learned about valuating business and stocks and which variables affect the valuations)

3) Now that the Venture Capitalists and the stock markets are more reluctant to open their wallets for investments in unicorns, the article mentions that some companies will try to source funds through debt instead of equity. What risks could involve that path of action for the company and for current shareholders?

4) In the article, there are mentions several “unicorns”, some of those companies will fail and some will be winners, which one do you believe has the best odds to be successful and why?

PART B. Read the article: “The repurchase revolution” and answer the following questions

1) In class, we have seen that stock repurchases are a good “signaling” that companies provide to the market, but the article thinks that in this case is otherwise, explain why.

2) The article mentions that some companies are being rewarded with higher stock prices without a need to pay a dividend or repurchase stock, just by reinvesting their profit back in their business, how can you explain this? (hint: think about the type of companies (Amazon), cost of capital vs returns of a project, etc.)

3) In the article is mentioned that a corrupt manager can take advantage of a share-buyback, how this work? Create a simple example showing how this scheme can work.

PART C. Fyre v2.0 – Festival

I have a friend who offered me an opportunity to invest in the Fyre Festival version 2.0 . He said that it will be highly successful and became the new Coachella or Ultra. It first version will be in 2021 and they are planning to do it in an island in Miami, they said that they are in discussions with Brickell Key Island and Grove Isle.

He said that I should invest $1MM now and I will receive a share of the profits in each of the 4 next Festivals. He mentioned that the estimation of my share of the profits that they calculated is the following one:

2020: $300,000
2021: $450,000
2022: $600,000
2023: $700,000

Use a discount rate of 12% and as benchmark for recover the initial investment 3 years, calculate and answer:

1 Calculate IRR, should I invest according to this tool?
2 NPV, should I invest according to this tool?
3 Payback period, should I invest according to this tool?

PART D. Resolve the following problem:

1. You purchased 500 shares of Johnson & Johnson (JNJ) last March at $140 per share. Since then, it paid a $4 per share dividend. You have just decided to sell all your shares at the current stock price (Check in any financial website for the current quote) and then calculate what was your percent and dollar return of your investment.

PART E. Read chapters 7 and 8 from the book “The Dhandho Investor” by Mohnish Pabrai and answer the following questions.

1.What is intrinsic value of a business and how you can calculate it?
2. What does the Efficient Market Hypothesis say? (To answer read your notes when we viewed this topic in class and the textbook)
3. What does the author think about it and what do you think about the EMH?