This case would be considered a critical incident, as it focuses on one primary issue – the valuation of a private equity investment in the underlying business. I have constructed the case based on consulting work I completed for the actual company, as they needed a valuation model for accounting purposes. So, all data, including the legal characteristics, are obtained directly from the company. However, for confidentiality reasons, the name of the firm has been changed.

This case itself concerns the valuation of an investment by a private equity firm in a mid-market business. The student must evaluate and understand the structure of the investment, which is effectively convertible preferred stock with a fixed maturity date. With this understanding, the student must then determine how best to value the investment, which is optimally done as a combination of straight debt and a call option on common stock. The student must also determine that the binomial (or lattice) approach to option valuation is appropriate.