Question

In: Finance

You founded your own firm three years ago. You initially contributed $200,000 of your ownmoney and...

You founded your own firm three years ago. You initially contributed $200,000 of your ownmoney and in return you received 2 million shares of stock . You also sold an additional 1 million shares of stock to angel investors. Now, you are considering a second round raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.

a.What is the price per share of this funding round?

b. What is the value of the whole firm afterthis investment (the post-money valuation)?

c. Assuming that this is the venture capitalist's first investment in your firm, what percentage of the firm will the venture capitalist own? What percentage of the firm will you own

after this investment?

d.How much money will you gain from founding this firm after this round of financing? Ignore time value of money when you answer this question.

Solutions

Expert Solution

(a)

Compute the price per share of the funding round using the equation as follows:

Hence, the price per share of funding round is $2.50.

(b)

Compute the total number of shares after this investment using the equation as follows:

Hence, total shares after investment are 5 million.

Compute the value of firm after investment using the equation as follows:

Hence, the value of firm after investment is $12.5 million.

(c)

Compute the percentage of shares held by venture capitalist using the equation as follows:

Hence, the venture capitalist owns 40% of shares of firm.

Compute the percentage of shares held by owner using the equation as follows:

Hence, the owner holds 40% of shares of firm.

(d)

Compute the gain from foundation of business using the equation as follows:

Hence, gain from foundation of business is $4.8 million.


Related Solutions

You founded your own firm three years ago. You initially contributed $200,000 of your own money...
You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 3 million shares of stock. Since then, you have sold an additional 2 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 4 million newly issued shares in return. Suppose you sold the 2 million shares to the angel...
You founded your own firm two years ago.You initially contributed $150,000 of your money and, in...
You founded your own firm two years ago.You initially contributed $150,000 of your money and, in return received 2,500,000 shares of stock. Since then, you have sold an additional 1,000,000 shares to angel investors. You are now considering raising even more capital from a venture capitalist (VC). This VC would invest $10 million and would receive 2.5 million newly issued shares. What is the post-money valuation? Assuming that this is the VC’s firstinvestment in your company, what percentage of the...
Lance contributed investment property worth $500,000, purchased three years ago for $200,000 cash, to Cloud Peak...
Lance contributed investment property worth $500,000, purchased three years ago for $200,000 cash, to Cloud Peak LLC in exchange for an 85 percent profits and capital interest in the LLC. Cloud Peak owes $300,000 to its suppliers but has no other debts. a. What is Lance’s tax basis in his LLC interest? b. What is Lance’s holding period in his interest? c. What is Cloud Peak’s basis in the contributed property? d. What is Cloud Peak’s holding period in the...
QUESTION 3 Three years ago, you founded an outdoor recreation company called EloMax Inc., a retailer...
QUESTION 3 Three years ago, you founded an outdoor recreation company called EloMax 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 Investors Shares Share Price (GHS) Series A Feb 2016 You 500,000 1.00 Series B Aug. 2017 Angels 1,000,000 2.00 Series C Sept. 2018 Venture Capital Trust Fund 2,000,000 3.50 It is now 2019 and you...
Assume that 8 years ago you borrowed $200,000 as a 30-year mortgage on your home with...
Assume that 8 years ago you borrowed $200,000 as a 30-year mortgage on your home with an annual percentage rate of 7% at monthly payments (12 payments per year). You plan to refinance this mortgage with a new 30 year low at the current rate of 5%. a. What is the monthly payment of the original mortgage. b. How much do you still owe of the original principal after seven years? (Hint: for a loan that is amortized, like a...
Assume that 8 years ago you borrowed $200,000 as a 30-year mortgage on your home with...
Assume that 8 years ago you borrowed $200,000 as a 30-year mortgage on your home with an annual percentage rate of 7% at monthly payments (12 payments per year). You plan to refinance this mortgage with a new 30 year low at the current rate of 5%. a. What is the monthly payment of the original mortgage. b. How much do you still owe of the original principal after seven years? (Hint: for a loan that is amortized, like a...
Imagine that you are one of three partners in an accounting firm. Five years ago, the...
Imagine that you are one of three partners in an accounting firm. Five years ago, the firm was appointed as external accountants to a successful startup company, engaged to prepare year end accounts and tax returns. The startup had begun trading with a handful of employees but now has a workforce of 200, while still remaining below the size of company requiring a statutory audit. Due to your close relationship with the director/owner of the company and several of its...
You invested $1000 in a stock portfolio 3 years ago.  You contributed another $1000 1 year ago.  The...
You invested $1000 in a stock portfolio 3 years ago.  You contributed another $1000 1 year ago.  The current value of the portfolio is $4000.  What is the rate of return (internal rate of return) of this investment?
Required information Assume that 25 years ago your dad invested $200,000, plus $26,000 in years 2...
Required information Assume that 25 years ago your dad invested $200,000, plus $26,000 in years 2 through 5, and $49,000 per year from year 6 on. At a very good interest rate of 14% per year, determine the CC value. The CC value is determined to be $  . 4265.80 is not correct
XYZ was founded 10 years ago. It has been profitable for the last 5 years, but...
XYZ was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $1 dividend 3 years from today, then to increase it at a relatively rapid rate of 20% for 3 years, and then to increase it at a constant rate of 8% thereafter. Assuming a required return of 12%,...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT