Bandai is a private company. Assume that this company will be fully owned by its private owner for the first year (year 1), will access technology venture capitalist in year 2, and is expected to go public at the end of year 2. The longterm growth rate is 2% forever after year 2. The publiclytraded peer companies have an average beta of 1.2. The correlation of Bandai with the market is 0.3 at the private company stage, and 0.6 at the venture capital stage. The company is all equity funded (no debt). The riskfree rate is 2% and the market risk premium is 4%. What is Bandai’s firm value?
Below is Bandai's free cash flow (FCF);
Year 1 
Year 2 
Terminal year 

FCF 
118 
121 
144 
Select one:
a. $2,695.91
b. $930.70
c. $1,694.88
d. $3,200
e. $2,679.34
Beta of Bandai as a private company = Industry average beta/correlation = 1.2/0.3 = 4
Beta of Bandai at VC stage = Industry average beta/correlation = 1.2/0.6 = 2
Beta of Bandai at public company stage = Industry average beta= 1.2
So, from CAPM
cost of equity/required rate of return of Bandai as a private company = 2%+4*4% = 18%
cost of equity/required rate of return of Bandai at VC stage = 2%+2*4% = 10%
cost of equity/required rate of return of Bandai at public company stage = 2%+1.2*4% = 6.8%
Now, Terminal Value of company = Terminal Cashflow/ (required rate  forever growth rate)
= 144/ (0.0680.02) = $3000
Now, Value of company today = 118/1.18+ 121/1.1^2+3000/1.1^2 = $2679.34 (option e)
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