A venture has been formed with 3,000,000 shares held by the founders. New investors add $1,000,000 for

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A venture has been formed with 3,000,000 shares held by the founders. New investors add $1,000,000 for new shares. The venture will exit (horizon time) in 5 years. Investors require an annual return of 50%. The venture will have an income of $1,000,000 per year at exit. A similar venture sold shares to public for $20,000,000 and has earned an income of $2,000,000 in last year. WORK OUT BY HAND AND SHOW WORK

Compute the following:

a. Acquired % of ownership

b. Shares to be issued

c. Issue share price

d. Pre- and post-money valuation

e. Founders’ and new investors’ % between financing and exit