Question

#18

Question 17 You are forming a startup and are reaching out to friends and family to invest money in your company. You circled up $200,000 for 10% of your firm. What is pre-money and post money valuation of your firm? Pre-money valuation Post money valuation Question 18 You want to purchase a low growth, cash flowing company for 5X EBITDA. Last year's EBITDA was $1,500,000. You will be purchasing the firm with the help from an entrepreneur and continue to grow the revenue and EBITDA at 15% per year because the historical growth of these figures has been over 30% growth. You want to be conservative in our estimations and believe that 15% is a reasonable growth figure considering lower growth rates due to the COVID-19 effect on the economy. What would be the purchase price of the company? What would you sell the company for in 5 years assuming your growth figures are attained? (Assume a 5x EBITDA exit multiple.) Question 19 You want to purchase a high growth, cash flowing company for 10X EBITDA. Last year's EBITDA was $500.000. You purchase the firm with the help from a Private Equity company and continue to grow the revenue and EBITDA at 30% per year. Unfortunately, during the following S years after you and the PE firm purchased the firm, the revenue and EBITDA growth was only 10% per year. What would you purchase the company for? Assuming that you only grew the EBITDA by 10% per year, what would you sell the company for in 5 years assuming that you will be able to sell it for 10X EBITDA?

Answer 1

Question -18

Ans

Purchase price of the company = EBITDA* 5

Purchase price of the company= $ 1,500,000 * 5.

Purchase price of the company = $ 7,500,000

You want to sell in 5 th year

Sell value of the company = EBITDA In 5 th year * 5

EBITDA In 5 th year = 1,500,000 ( 1+ 0.15)5

EBITDA In 5 th year =$ 3,017,035.78

Sale value of the company = $ 3,017,035.78 * 5

Sale value of the company = $ 15,085,178.9