Final answer:
When evaluating a private firm with only sales information, the enterprise value over sales (EV/Sales) method can be used. Other methods like DCF or intrinsic value calculations generally require more detailed financial data. In early-stage corporate finance, small companies opt for different funding options based on costs, capital needs, and the level of investor involvement.
Step-by-step explanation:
To evaluate a private firm with only the sales information available, the method that could be used is the enterprise value over sales (EV/Sales) method. This method involves taking the revenue or sales of the company and applying a multiple that is considered appropriate for the industry or similar companies. Since a Discounted Cash Flow (DCF) analysis requires detailed financial information, which we do not have, it would not be suitable in this case. Intrinsic value methods also typically require more information than just sales.
Regarding early-stage corporate finance:
- Very small companies tend to raise money from private investors instead of an IPO due to the high costs and rigorous regulatory requirements associated with going public.
- Small, young companies might prefer an IPO to access greater amounts of capital and improve public image, which can be more challenging when borrowing from a bank or issuing bonds.
- A venture capitalist likely has better information about whether a small firm is likely to earn profits compared to a potential bondholder due to their active involvement and expertise in startup growth and development.
When it comes to bonds and bank loans, from a firm's perspective, they are similar as they both represent forms of debt that the firm must repay. However, they differ in terms of structured payment, interest rates, maturity, and the effect on the firm's credit ratings.
For Fred's situation:
Fred's equity in his home would be the down payment he made, which is 10% of the $200,000 house. Therefore, Fred's equity is $20,000.