Problem
Create a cap table in excel with the following information.
"With two friends you acquire an old factory to start producing ventilators to address the COVID-19 pandemic. Instead of paying cash for the facility you convince the factory owner to accept 10% of the company for the property. You and your two partners are equal owners, and each receive 3 million shares when the company is formed. In addition, you license the design of the ventilator from a company for a 5% royalty based on revenue. You are able to get all the funding you need to retool the factory, purchase materials, hire a production staff and launch production from federal grants.
After a few years of making decent profits, demand for ventilators starts to diminish. One day one of your best engineers comes to you with an idea to repurpose the factory for a new and improved CPAP machine that she has developed. The global CPAP market is approximately $6 billion per year with a projected CAGR of 7.4% for at least the next 5 years. Your engineer offers to sell the company her design for 10% of the company's fully diluted equity. The engineer also wants the company to create an Employee Stock Ownership Plan equaling 15% of the company prior to the deal for her CPAP design.
You and your partners think the deal is in your best interest, but if you are going to do it you want to buy out the ownership interest of the factory's prior owner. You approach the prior owner and she agrees to sell her 10% stake for $8 million. The company has a line of credit with a local bank that it can draw on to buy out the prior owner so all three partners agree and the company buys out the former factory owner and retires her shares (the company buys the shares and the fully-diluted shares go down by that number of shares).
The company launches its CPAP machine and to everyone's delight it rapidly gains market share. As a reward you grant the entire option pool to your existing employees. You and your partners decide to build a new state- of-the-art production facility in Logan Utah. The total cost of the new facility will be $150 million. A syndicate of banks agrees to put up $115 million in debt financing. Tag Romney's private equity firm (Solamere) agrees to invest the needed $35 million for a 25% stake in the company. In conjunction with the deal, Mitt buys 5% of each founders' stake at a 10% discount to the price of the round.
5 years later Solamere needs to liquidate its position. Tag approaches Philips Respironics about buying Solamere's position in the company. Philips is not interested in a minority position but offers to buy the entire company for $700 million. Assume that the company still owes $45 million of the debt used to finance the new facility which the company will have to pay off out of the money from the sale prior to distributing proceeds to the shareholders. How much do you make from the sale of the company after paying off the debt? What was Solamere's cash on cash return?"