John Thompson, CEO of WVU, Inc., wants to raise $5 million in a private equity in his early stage venture. John projects net income of $11 million in year five (five years from now) and knows that similar companies trade at a P/E ratio of 24. On further analysis and discussion, Samantha and John agree that the company will probably need another round of financing in addition to the current $5 million. Samantha believes that the company will need an additional $3 million in equity at the beginning of year 3. While Samantha, is the only first round investor, will require a 50% return, Samantha feels that round 2 investors, in recognition of the progress made between now and then, will probably have a hurdle rate of only 30%. As before, a professional management team should have the ability to own a 10% share of the company by the end of year 5.

a. Based on this new information, what percent of the company should Samantha seek today? (as percent with two decimal places (Example: 8.24%) 

b. What price per share should she be willing to pay? 

c. What percent of the company will the Round 2 investors seek?

d. What price per share will they be willing to pay? 

Answer rating: 100% (QA)

a Net income in Year 5 11million PE ratio of comparable companies at that time 24 Valuation of compa... View the full answer