Please answer the following questions about TeToe, a startup company. The company needs $ 4 million capital. Assume the valuation date is the end of year 5, projected earnings will in year 5 will be $25 million, and an appropriate price-to-earnings ratio for valuing these earnings is 20 times. Assume that there are 500,000 shares outstanding. The required return for the investors is 50%. You must show your work!
a) What percentage ownership at time 0 should the investors demand for their $5 million investment?
b) What would be the number of new shares issued?
c) What would be the pre-money and post-money valuation?