Question

Having thought about Dr. John’s and Rent the Runway, let’s consider Facebook again. Jim Breyer agreed...

Having thought about Dr. John’s and Rent the Runway, let’s consider Facebook again. Jim Breyer agreed to value Facebook at $100 million in 2005 even though it only had five employees and modest revenues. Of the five people, only two were over 21.

Looking at the key determinants of options, what do you think was giving this option so much value? Pick one.

- Cost of the Option

- Expected Present Value of Potential Cash Flows

- Upside Volatility

- Time

- Interest Rates

Business   Operations-Management   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Even though status of Facebook in 2005 was average with only 5 employees and modest revenues, there was future potential which Jim Breyer saw. This was because growth in revenues was expected due to rapid adoption of social media by the masses, leading to huge potential cash flows. The expected potential cash flows when discounted to present day (2005), increased the expected present value which led to a high valuation of Facebook at $10 million.

Hence, correct option is Expected Present Value of Potential Cash Flows.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
In February 2012, the Pepsi Next product was launched into the US market. This case study...
In February 2012, the Pepsi Next product was launched into the US market. This case study provides students with an interesting insight into PepsiCo’s new product process and some of the challenging decisions that they faced along the way. Pepsi Next Case Study Introduction Pepsi Next was launched by PepsiCo into the US market in February 2012, and has since been rolled out to various international markets (for instance, it was launched in Australia in September 2012). The new product...
What tools could AA leaders have used to increase their awareness of internal and external issues?...
What tools could AA leaders have used to increase their awareness of internal and external issues? ???ALASKA AIRLINES: NAVIGATING CHANGE In the autumn of 2007, Alaska Airlines executives adjourned at the end of a long and stressful day in the midst of a multi-day strategic planning session. Most headed outside to relax, unwind and enjoy a bonfire on the shore of Semiahmoo Spit, outside the meeting venue in Blaine, a seaport town in northwest Washington state. Meanwhile, several members of...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT