Question

A potential investor is seeking to invest $750,000 in a venture, which currently has 1,000,000 shares held by its founders, and is targeting a 45% per annum return for the next five years. The venture is expected to produce $1,000,000 in income per year at year 5. It is known that a similar venture recently produced $2,000,000 in income and sold shares to the public for $15,000,000.

a. What is the percent ownership of our venture that must be sold in order to provide the venture investor’s target return?

b. What is the number of shares that must be issued to the new investor in order for the investor to earn his target return?

c. What is the issue price per share?

d. What is the pre-money valuation?

e. What is the post-money valuation?

Answer 1

page:01 Answer From the problem Required @ percent ownership of venture post money valuation : investment amount ownership acquired Exit value required by the investor = 450,000 X 1.45° = 4807300 Exit value of the firm = 15,000,000 X 0.5 = 1500000 Hence 4807300 owney ship sequered - 7500000 : 0.64094 :post money valuation 164.0944) =(450000 64.0971.) = 1170 number of shares issued." B R000000 x . Il-0.6409+) be (0.64094) - 2000000 X 1.785282567 = (35.4056511341 shares

page-02 © issue price per shore investment amount number of shares 750,000 3570565,134 = 10. 21 per share pae - money. valuation post money valuation - investment amount 10101.565 - 750000 = 1490101.5648] : @ post money valivation investment amount owernship acquired 750000 64.0974 1140101, 565