Using the information below, please answer the following questions below about Surelock Homes, a start-up company. In your analysis, assume the valuation date is the end of year 6, projected earnings in year 6 will be $12 million, and an appropriate price-to-earnings ratio for valuing these earnings is 20 times. Financing Round Amount Required in millions Year Return 123 $6 0 60% 2 3 8 2 40% 12 4 30% In addition, the company wants to reserve 15 percent of the shares outstanding at time 6 for employee bonuses and options.

a. What percentage ownership at time 0 should round 1 investors de- mand for their $6 million investment?

b. If Surelock presently has 1 million shares outstanding, how many shares should round I investors demand at time 0?

c. What is the implied price per share of Surelock stock at time 0?

d. What is Surelocks pre-money value at time 0? What is its post- money value?

AppendixLO1