1- You founded your firm with a contribution of $855000, receiving 1500000 share
ID: 2614925 • Letter: 1
Question
1- You founded your firm with a contribution of $855000, receiving 1500000 shares of stock. Since then, you sold 1500000 stocks to Angel Investors. Now you are considering raising more capital from a Venture Capitalist. They will invest $8500000 and would receive 4000000 newly issued shares. If this is the VC's first investment in the company, what is the value of your shares?
2- Company Detox, is a private company that designs, manufactures and distributes certain consumer products. In this fiscal year, Detox had revenues of $38 Millions of USDs and earnings of $12 of Millions of USDs. Detox company has filed a registration statement with the SEC for its IPO. If the industry average Price/Earnings ratio and Price/Revenues ratio for the recent fiscal year were 12 and 0.9 respectively. Estimate the IPO price for Detox Company using the Price/Earnings ratio and assuming that they will issue 22 Million shares."
Explanation / Answer
1:Total value of the company= 855000+8500000=9355000
Total number of shares= 1500000 +1500000 +4000000 =7000000
Value per share = 9355000/7000000= $1.336429
Value of your shares= $1.336429*1500000 = 2004643
2:P/E Ratio = Price per share/ EPS
12= Price per share/ (12m/22m)
Price per share= 12*12/22 = $6.545455
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