Question: Using the following information, please answer the questions about Surelock Homes, a startup company. In your analysis, assume the valuation date is the end of

Using the following information, please answer the questions about Surelock Homes, a startup 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 in millions Year Required Return 1 $ 6 0 60%

2 8 2 40%

3 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 demand for their $6 million investment?

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

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

d. What is Surelock’s pre-money value at time 0? What is its post-money value?

LO.1

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