Questlion $4(25$ polints tetal$)$

Wow are the founder of a vides game fim. Suppose rou made an initial investment of $$1$ million and recelved I million shares four vears ago. Two vears ago, vou raised funding from a venture caplailet whe invested $$6\mathrm{.}5$ milion in the firm. Following the venture capitalist's funding, the Firmis walue was $$18\mathrm{.}6$ milison $($the post money valuation$).$

a$.$ A mow many sharcs did the venture capitalist receive in Epic Arts in exchange for their investment? What was the implied price per share?

Wou now plan to take the frm public through an initial public offering $($IPO$).$ You wish to raise $340$ million, net of issuance costs, for investment into the firm. Issuance costs will be $5\%$ of the eoss amount raised. In the first vear as a public firm, the expected earnings of Epic Arts will be $52$ million.

b$)$ Suppose that similar technology firms with publicly traded shares have a prospective price$/$carnings multiple of $16.$ What is the implied market value of a share in company?

You set the iPO price to imply a price$/$earnings multiple of $16.$

c$.)$ Assuming the IPO is successful, what are the firm's post$-$IPO net market value and share price? How many shares are issued in the IPO?

c$.$l$)$ What is the change in the value of your shareholding from taking your firm public?

ciii$)$ Assume now that the IPO shares need to be priced at $$15$ per share for the IPO to be successful. How many shares must be issued? What is the change in the value of your shareholding compared to before the IPO?

d$)$ Explain what market imperfections can account for the difference in your answers in parts $c(a)$ and $c(iii)$ above