The attached template is for your convenience only. You are free to use this template or other templates created from scratch. Please remember, that all your numbers need to be verifiable – either you should reference the source of your initial data or provide the calculations for further steps. Also, please state all the assumptions you are making.

Valuation of LendingClub

This problem requires you, among other things, to estimate the stock price for LendingClub, and provide the analysis as requested. You will need to use “Sources of Financial Data” listed in Course Content^[1] to obtain the necessary financial info/statements for LendingClub, to identify its peer companies and to obtain pricing and financial information for them. For some parts of the exam you might already have numbers from the Midterm. Don’t forget to make adjustments in response to my feedback comments, if necessary.

A.   Choose several peer companies for LendingClub and justify your choice. Choose several valuation multiples and using comparable ratios of peer companies (as we did in Project 2 and discussed in Conferences) and LendingClub financial information from prospectus, estimate the company’s hypothetical stock price on December 9, 2014. It is required for this question to list your major assumptions and properly reference sources of information that you used in your calculations.

B.    Using the same peers and industry data, please estimate LendingClub’s WACC Show all your data used for calculations. Again, please state all your assumptions and sources of information.

C.    LendingClub went public on December 10, 2014. How do your valuations compare to the company’s IPO price? How do they compare to its first trading day opening and closing prices? If your valuations differ from observed prices, can you briefly forward any possible explanations?

D.   In April 2010 Norwest Venture Partners X acquired 12,451,360 shares of Series C preferred stock for aggregate consideration of $ $4,879,999. In April 2011 the same fund acquired 3,635,264 shares of Series D preferred stock for aggregate consideration of $ 3,233,022. The stock never paid dividend. At IPO all preferred stock was converted to common shares and in exchange for its preferred shares Norwest received 50,822,020 common shares. If Norwest sold shares at IPO, what its annualized return would be? Did Norwest actually sell at IPO (support your answer by evidence)? If Norwest sold shares at market closing on April 17, what its annualized return would be?

E.    The following information is for pedagogical purposes only and unlike earlier questions does not deal with real situation. There are rumors that LendingClub is negotiating a three year agreement with WellsFargo, according to which LendingClub will have a right to sell its proprietary trading softwareto WellsFargo at the beginning of any year in this three-year period. Once LendingClub sells the software, it receives a one-time license fee of $ 250 M, but it cannot serve Wells Fargo clients anymore. The current value of Wells Fargo clients to LendingClub is estimated to be $300 M. Each year this value can go up 10% or down 20% in comparison with the previous year. If the risk-free rate is 3%, how much this agreement is worth to LendingClub? What should the company do over three years? Please provide as many details as possible in your explanations and support them by numbers. (Hint: think about this as an American put option)

Make sure to justify your responses by using the available data/info and carrying out any needed and relevant calculations.