Problem Set Week Solutions Essay Example

Problem Set Week Solutions Paper What is the implied price per share of this funding round? B. What will the value of the whole firm be after this investment (the post-money valuation)? Answer: a. After the funding round, the founders 8 million shares will represent ownership of the firm. To solve for the new total number of shares (TOTAL): 0. 80 TOTAL So TOTAL = shares, If the new total is 10 million shares, and the venture capitalist will end up with 20%, then the venture capitalist must buy 2 million shares. Given the investment of 51 million for 2 million shares, the implied price per share is $0. 0. B. After this investment, there will be 10 million shares outstanding, with a price of $0. 0 per share, so the post-money valuation is million. 2. Three years ago, you founded your own company. You invested $100,000 Of your money and received 5 million shares of Series A preferred stock. Since then, your company has been through three additional rounds Of financing. A. What is the pre-money valuation for the Series D funding round? B. What is the post-money valuation for the Series D funding round? C. Assuming that PU own only the Series A preferred stock (and that each share of all series of preferred stock is convertible into one share of common stock), what percentage f the firm do you own after the last funding round? A. Before the Series D funding round, there are 500,000 shares outstanding. Given a Series D funding price of $4. 00 per share, the pre-money valuation is (6, SOCIO) x SO,O/share = $26 million. H. After the funding round, there will be 500,000 shares outstanding, so the post-money valuation is x $4. 00,share c. You will own = 71. 4% of the firm after the last funding round. 3. Three years ago, you founded Outdoor Recreation, Inc. , a retailer specializing in the sale Of equipment and clothing for recreational activities such as camping, skiing, and hiking. So far, your company has gone through three funding rounds: Round Date Investor Shares Share Price (S) Series A Feb.. 2009 You 500,000 1. 00 Series B Gag. 2010 Angels Series C septet. 2011 Venture capital Currently, it is 2012 and you need to raise additional capital to expand your business. We will write a custom essay sample on Problem Set Week Solutions specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Problem Set Week Solutions specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Problem Set Week Solutions specifically for you FOR ONLY $16.38 $13.9/page Hire Writer You have decided to take your firm public through an PIP- You would like to issue an additional 6. 5 million new shares through this PIP. Assuming that your firm successfully completes its PIP, you forecast that 2012 net income Will be $7. 5 million. A. Your investment banker advises you that the prices of other cent Ipso have been set such that the PIE ratios based on 2012 forecasted earnings average 20. 0. Assuming that your PIP is set at a price that implies a similar multiple, what will your PIP price per share be? B. What percentage of the firm will you own after the PIP? . With a PIE ratio of 20. Xx, and 2012 earnings of $7. 5 million, the total value of the firm at the PIP should be: There are currently (500,000 ; 1,000, COO + = shares outstanding (before the PIP). At the PIP, the firm will issue an additional 6. 5 million shares, so there will be 10 million shares outstanding immediately after he PIP. With a total market value of $150 million, each share should be worth 5150/ 10 $ IS per share b. After the PIP, you will own 500,000 of the 10 million shares outstanding, or 5% of the firm. . Assume Voce, Inc. , has a current price of SO and will pay a 52 dividend in one year, and equity cost of capital is 15%. What price must you expect it to sell for right after paying the dividend in one year in order to justify its current price? We can solve the equation for the price Of the stock in one year given the current price of $50. 00, the $2 dividend, and the 15% cost of capital. At a current price of $50, we can expect Voce stock to sell for ASS. 50 immediately after the firm pays the dividend in one year.