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Expert Answer   Pushpender Kumar Was the answer helpful ? 1. FV of investment at the time of exit for 50% return  =  Investment × (1 + r)n  = 5 x (1 + 50%)5 = $ 37.97 million Valuation at exit = P/E multiple x Earnings = 20 x 5 = $ 100 million Hence, share of company required today = FV/ Valuation = 37.97 / 100 = 37.97% 2. Post money valuation therefore will be = Investment / % share = 5 / 37.97% = $ 13.17 million 3. Pre-money valuation = Post money - Investment = 13.17 - 5 = $ 8.17 million 4. If N is the number of shares purchased by venture capital, then N / (N0 + N) = 37.97% Or, N / (1,000,000 + N) = 37.97% Hence, N = 612,091 and price per share = I0 / N = 5,000,000 / 612,091 = $ 8.17 per share. 5. For round 2 of financing, additional $3 million required 3 years from today at the rate of 30% Additional FV of investment= 3×(1+30%)³ = $6.59 million Additional share=FV/valuation= 6.59/100 = 6.59% Hence, round 2 investors seek 6.59% share. 6. Post money valuation= 3/6.59 = $45.52 million. Pre-money valuation= 45.52-3 = $42.52 million 7. According to part 5, first round investor still require 50%/year return on 3 million investment for 3 years, FV= 3×(1+50%)³ = $10.12 million. Share= 10.12/100= 10.12% Hence, total share of company round 1 investors seek today= 37.97+10.12= 48.09% 8. Let Shares issued in round 1 be N, then, N / (1,000,000 + N) = 48.09% N= 923077 And now in round 2, they seek 6.59% share. So, N / (1,000,000 + N) = 6.59% N= 70664 shares. 9. Price per share in round 1 = total investment/number of shares = 8,000,000/923077= $8.67 per share. For round 2, price per share = 3,000,000/70664=  $42.45 per share.  Saritha p Was the answer helpful ? James Roth, CEO of the new start-up Arbuckle, Inc., which manufactures highly popular shoes, seeks to raise $5 million investment in his early stage venture. James conservatively projects earnings at exit of $5 million, five years from now, and knows that comparable companies at the time of exit trade at a price-earnings ratio of 20X. 1. What share of the company will a venture capitalist require today if her required rate of return is 50% per year? 2. What is the post-money valuation? 3. What is the pre-money valuation? 4. If the company has 1,000,000 shares outstanding before the investment, how many shares should the venture capitalist purchase? What price per share should she agree to pay if her required rate of return is 50%? 5. On further analysis, the VC and Madhav agree that the company will probably need another round of financing in addition to the current $5 million. The VC thinks the company will need an additional $3 million in equity three years from today. While the first round investors still require a 50%/year return, she thinks the second round investors will only require 30%/year. Based on this new information, what share of the company will Round 2 investors seek? 6. What is the post-money and pre-money valuation of Round 2 investment? 7. Based on the information in Question 5, what share of the company would Round 1 investors seek today (i.e., in the first round)? 8. How many shares should be issued to investors in round 1 and then subsequently to investor in round 2? 9. What is the price per share in both rounds?  William Radigo Was the answer helpful ? okay  I know you will be busy  but I will understand...hit me tomorrow or when you are done packing  MAYUR DESHKAR Was the answer helpful ? Answer:-  Bhartendu Goyal Was the answer helpful ? "Corporate Finance professional and Financial modeling trainer" You have asked a question with multiple sub parts. I have addressed the first four. Please post the balance sub parts separately. 1. FV of investment at the time of exit to enable 50% return = I0 x (1 + r)n = 5 x (1 + 50%)5 = $ 37.97 million Valuation at exit = P/E multiple x Earnings = 20 x 5 = $ 100 million Hence, share of compnay required today = FV / Valuation = 37.97 / 100 = 37.97% 2. Post money valuation therefore will be = Investment / % share = 5 / 37.97% = $ 13.17 million 3. Pre money valuation = Post money - Investment = 13.17 - 5 = $ 8.17 million 4. If N is the number of shares purchased by venture capital, then N / (N0 + N) = 37.97% Or, N / (1,000,000 + N) = 37.97% Hence, N = 612,091 and price per share = I0 / N = 5,000,000 / 612,091 = $ 8.17 per share  ADULLA Srikanth Reddy Was the answer helpful ? 20% shares of company  required venture capitalist for to earn 50% return Transcribed Image Text James Roth, CEO of the new start-up Arbuckle, Inc., which manufactures highly popular shoes, seeks to raise $5 million investment in his early stage venture. James conservatively projects earnings at exit of $5 million, five years from now, and knows that comparable companies at the time of exit trade at a price-earnings ratio of 20X. 1. What share of the company will a venture capitalist require today if her required rate of return is 50% per year? 2. What is the post-money valuation? 3. What is the pre-money valuation? 4. If the company has 1,000,000 shares outstanding before the investment, how many shares should the venture capitalist purchase? What price per share should she agree to pay if her required rate of return is 50%? 5. On further analysis, the VC and Madhav agree that the company will probably need another round of financing in addition to the current $5 million. The VC thinks the company will need an additional $3 million in equity three years from today. While the first round investors still require a 50%/year return, she thinks the second round investors will only require 30%/year. Based on this new information, what share of the company will Round 2 investors seek? 6. What is the post-money and pre-money valuation of Round 2 investment? 7. Based on the information in Question 5, what share of the company would Round 1 investors seek today (i.e., in the first round)? 8. How many shares should be issued to investors in round 1 and then subsequently to investor in round 2? 9. What is the price per share in both rounds? Related Book For Sale Managerial Accounting A Focus On Ethical Decision Making 5th edition (Purchase / Rent) 谢谢亲的回惠顾，期待您的下次光临！ 添加客服微信:bbwxnly，购买沟通交流so easy Coursehero｜Scribd｜Studymode｜Oneclass｜Chegg｜Studyblue｜Termpaperwarehouse｜SolutionInn｜Bartleby 谢谢亲的支持，祝您学习愉快:)