For problem 9.14 the problem is worked for you in the attached Excel document. Use this document and address the following questions to earn credit for this problem:

How much is terminal value and how was it derived?

What are the required returns for each investor's specific round of financing? How do they compare to each other and why are they different?

What is the process used to determine an investor's present value relative to their round of financing?

Why did the owners desire to hold back 15% for employee incentive stock plans? As a prospective investor is this a welcome provision? Why or why not?

In general terms, explain how the percentage of ownership, retention, percentage of ownership with retention and number of shares issued to each investor are obtained?

% of Ownership After Round of Funding Year Financi Amount ng in Round Millions 1 $ 6 2 $ 8 3 $ 12 Earning sat Merited Respective Termina PE at values at Require Value Termina specific d Return Millions I Value year 60% $ 14.31 40% $ 62.47 30% $ 142.01 $ 12 20 $ 240 Retention Ratio Per Round 63.7% 76.6% 85.0% % Ownership 41.9% 12.8% 8.5% % Ownership at Round with retention 65.8% 16.7% 9.9% 0 2 4 Investor shares After at funding Total issued Price per Pre-Money Incentiv round shares share Post Money Value Value Round 1 Round 2 Round 3 e Pool 1,923,849.11 2,923,849.11 $ 3.12 $ 9,118,747.71 $ 3,118,747.71 65.80% 54.8% 49.3% 41.9% 587,356.78 3,511,205.89 $ 13.62 $ 47,823,823.41 $ 39,823,823.41 16.7% 15.1% 12.8% 387,585.76 3,898,791.65 $ 30.96 $ $ 120,710,059.17 $108,710,059.17 9.9% 8.5% Orig. Owners 34.20% 28.5% 25.6% 21.8% 15% Total Ownership 100.00% 100.00% 100.00% 100.00% 6 Retained for Employee incentive pool Number of shares outstanding at time 0 15% 1,000,000 % of Ownership After Round of Funding Year Financi Amount ng in Round Millions 1 $ 6 2 $ 8 3 $ 12 Earning sat Merited Respective Termina PE at values at Require Value Termina specific d Return Millions I Value year 60% $ 14.31 40% $ 62.47 30% $ 142.01 $ 12 20 $ 240 Retention Ratio Per Round 63.7% 76.6% 85.0% % Ownership 41.9% 12.8% 8.5% % Ownership at Round with retention 65.8% 16.7% 9.9% 0 2 4 Investor shares After at funding Total issued Price per Pre-Money Incentiv round shares share Post Money Value Value Round 1 Round 2 Round 3 e Pool 1,923,849.11 2,923,849.11 $ 3.12 $ 9,118,747.71 $ 3,118,747.71 65.80% 54.8% 49.3% 41.9% 587,356.78 3,511,205.89 $ 13.62 $ 47,823,823.41 $ 39,823,823.41 16.7% 15.1% 12.8% 387,585.76 3,898,791.65 $ 30.96 $ $ 120,710,059.17 $108,710,059.17 9.9% 8.5% Orig. Owners 34.20% 28.5% 25.6% 21.8% 15% Total Ownership 100.00% 100.00% 100.00% 100.00% 6 Retained for Employee incentive pool Number of shares outstanding at time 0 15% 1,000,000