L10 - Space Tourism Financing 1

Question 1

What is Space Tourism Financing?

Answer 1

The sum of all measures that provide a space tourism venture with a sufficient cash flow at any given time while minimizing ownership dilution as well as the cost of capital.

Question 2

Cost of Capital and Availability for Government-backed Loans?

Answer 2

6% - None

Question 3

Cost of Capital and Availability for Private Debt?

Answer 3

8-10% - Low

Question 4

Cost of Capital and Availability for Private Equity?

Answer 4

10-14% - Fair?

Question 5

Cost of Capital and Availability for HIgh-Yield Bonds?

Answer 5

15% - Low

Question 6

Cost of Capital and Availability for Common Stock (public equity)?

Answer 6

15-18% - Low to Fair

Question 7

Cost of Capital and Availability for Venture Capital?

Answer 7

40% - Too Low

Question 8

Cost of Capital and Availability for Friendly Sources, Business Angels?

Answer 8

>50% - Sometimes, if you’re lucky

Question 9

List 7 Types of Funding for Space Ventures.

Answer 9

Government-backed Loans Private Debt Private Equity High-Yield Bonds Common Stock (public equity) Venture Capital Friendly Sources, Business Angels, HNWIs (HIgh Net Worth Individuals)

Question 10

When should you raise money?

Answer 10

When you don’t need it! So you have more bargaining power.

Question 11

What is the Payback Period?

Answer 11

It is the length of time until a project recoups ist initial investment.

Question 12

What is the Accounting Rate of Return?

Answer 12

It measures the average profit per year and expresses this as a rate of return on the capital invested.

Question 13

What is the Initial Rate of Return? (IRR)

Answer 13

It equals the discount rate required to equate the discounted value of future cash flows with the initial investment (in other words, to make NPV = 0).

Question 14

What does NPV depend on?

Answer 14

NPV depends solely on forecasted cash flows and on the (opportunity) cost of capital.

Question 15

What is the Net Present Value Rule?

Answer 15

You only accept investments that have positive net present values.

Question 16

What is the Cost of Capital Rule?

Answer 16

You only accept investments that offer rates of return in excess of their opportunity costs of capital.

Question 17

How do you calculate the cost of Equity Capital?

Answer 17

r = rf +β x (rm - rf) r: Opportunity Cost of Capital rf: Risk Free Interest Rate rm: Expected Rate of Return β: Business Risk = Average Volatility

Question 18

How do you calculate Space Tourism Beta?

Answer 18

Use Beta Book Regression Analysis (analyse stock) Comparables Method (similar firms/industries)

Question 19

What is Space Tourism Characterized by?

Answer 19

Product (untangeable, experience) Pricing (very) Quantity (low, luxury) Customer Segments (rich people) Purchasing Patterns (once in a lifetime) Company Position (design, build, sell)

Question 20

What is the estimated Beta for Space Tourism?

Answer 20

1.5

Question 21

Give an example of equity cost from the year 2000 for Space Tourism.

Answer 21

r = 5.6% + 1.5 x (13.6% - 5.6%) = 17.6% It changes over time depending on risk free and market rates.

Question 22

What is WACC?

Answer 22

Weighted Average Cost of Capital

Question 23

WACC = ?

Answer 23

rD = cost of debt

rE = cost of equity

TC = marginal corporate tax rate

V = Total Market Value of Firm

D = Debt

E = Equity

Question 24

List the different Cost of Capital (CoC) for space business under two different value chain configurations.

Answer 24

All in One: 17.6% (unproven)

Rocket Corporation (design/build): 10% (known)

Space Tour Operator: 17.6%

(Space) Travel Agent: 15.8% (knwon)

Question 25

Main problem with Professional Capital today?

Answer 25

It is only attracted by satellite market.