18-1: Benjamin Garcia's start-up business is succeeding, but he needs $600,000 in additional funding to fund...

18-1: Benjamin Garcia's start-up business is succeeding, but he needs $600,000 in additional funding to fund continued growth. Benjamin and an angel investor agree the business is worth $1,000,000 and the angel has agreed to invest the $600,000 that is needed. Benjamin presently owns all 20,000 shares in his business. What is a fair price per share and how many additional shares must Benjamin sell to the angel? Because the stock will be sold directly to an investor, there is no spread; the other flotation costs are insignificant.

Solutions

Expert Solution

Fair price per share:

= Value of business / No. of shares

= $1,000,000 / 20,000 shares

Therefore, Fair Price Per Share = $50

Additional shares that Benjamin must sell to the angel:

= Additional Investment Value / Fair Price Per Share

= $600,000 / $50

= 12,000 shares

jeff jeffy answered 2 years ago

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