⇧ Valuation model

Your Board of Directors are keen to proceed with the fundraising round but have asked you to estimate the value of VSC.

For the purposes of this valuation, you should assume the following:

1. The valuation will take place on 31 December 20X2, at which point VSC has net assets of $5.63m.
2. VSC will borrow $3m against these assets on 31 December 20X3, which should be included within the valuation. This will comprise of the following:
   • A $2.6m loan secured against the office with an annual interest rate of 6%, payable on 31 December each year;
   • A $0.4m loan secured against the invoices with an annual interest rate of 4%, payable on 31 December each year;
3. The company will receive $12m from an investor on 1 January 20X3, however this should be excluded from the valuation which is being calculated on a pre-money basis.
4. The company will generate negative cash flows of $13m in 20X3 and $1.2m in 20X4. It will then generate positive cash flows of $1.5m in 20X5, $4m in 20X6 and $9m in 20X7, followed by a 3% annual growth rate into perpetuity.
5. The company’s annual weighted average cost of capital (the discount rate) is 12%.

⇧ Action required

Build a discounted cash flow (“DCF”) model to estimate the current valuation of VSC by using the above inputs.

Submit your model below.

You should derive a valuation of $60m!