Consider the situation of a VC who is contemplating a $5,500,000 in a street tacos company...

Consider the situation of a VC who is contemplating a $5,500,000 in a street tacos company with franchise locations in Dallas, Houston, San Antonio, and McAllen.
The company does not expect to require further funding through year 5.
The company is expected to have a net income of $2,500,000 in year 5. Comparable companies command P/E ratios of about 20x. For the risk assumed the VC requires a 30 percent IRR on the investment.

The company has 1,500,000 outstanding shares and will issue preferred shares to the VC convertible to common shares at a ration of 1:1. How many preferred shares will the company have to issue to the VC?

What price per share?

What is the post-money valuation of the company?

What is the pre-money valuation of the company?

What is the stock price of the company before the VC funding?

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Expert Solution

jeff jeffy answered 1 year ago

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