2007 Paper 7 Question 13
Business Studies
(a) Give five criteria an investor might apply to a start-up proposal. [5 marks]
(b) What are the differences between debt and equity finance? [5 marks]
(c) A software start-up company is developing computer games software. They
believe their game will have potential market of a million units selling at a retail
price of £49.99. They have already raised £1M from Angel investors for 33%
of the company, which has been mostly spent on development. They estimate
they can complete development and become cash flow positive following initial
marketing, but that this will cost a further £1M and take another year. They
intend to raise this money by selling further equity.
(i) Price this issue. [5 marks]
(ii) They receive a letter of intent from a publisher confirming their market
estimation and offering 10% royalty on the retail price with £500k
recoupable but non-refundable advance (where the publisher will take the
first £500k of royalty earned to recoup the advance, but will not demand
a refund if the game fails to sell). Should the company take this offer and
how does this affect the proposed share offer? [5 marks]