The Company needs $5 million in capital. In your analysis, assume the valuation date is the end of year 5, projected earnings will in 5 years will be $20 million, and an appropriate price to earning ratio for valuing these earnings in 20 times. Assume that there are 500,000 shares outstanding. The required return for the investors is 50%.
a) What percentage ownership at times 0 should the investors demand for their $5 million dollar investment?
b) What would be the number of new shares issued?
c) What would be the pre-money and post money valuation?