Question

1. Determine the post-money evaluation of a company if $50,000 is accepted for 20% of the company, and the pre-money evaluation of a company if $50,000 is accepted for 20% of the company.

2. Determine the post-money evaluation of a company if $25,000 is accepted for 50% of the company, and the pre-money evaluation of a company if $25,000 is accepted for 50% of the company.

3. Determine the post-money evaluation of a company if $300,000 is accepted for 10% of the company, and the pre-money evaluation of a company if $300,000 is accepted for 10% of the company.

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Answer 1

Pre-money valuation means the valuation of the company prior to the investment. Post-money valuation is the value after an investment has been made.

Post -Money Valuation:

If an investor pays $1 million for 10% of the company, post-money valuation =($1 million)/0.1=$10 million.

Pre-Money Evaluation

Prior to the $1 million investment, the company is not worth $10 million. Once the $1 million worth of cash is added to the company’s balance sheet the company will increase in value by $1 million. To calculate the pre-money valuation we need to subtract the amount of investment from the post-money valuation. In this example, the company will have pre money valuation of $9 million. This is calculated by taking the $10 million post-money valuation and subtracting the amount of the investment ($1 million).

.1.Post money valuation =$50,000/0.2=$250,000

Pre money valuation =$250,000-$50,000=$200,000

.2. Post money valuation =$25,000/0.5=$50,000

Pre money valuation =$50,000-$25,000=$25,000

.3. Post money valuation =$300,000/0.1=$3,000,000

Pre money valuation =$3,000,000-$300,000=$2,700,000