Benjamin Garcia\'s start-up business is succeeding, but he needs 200,000 in addi

Question

Benjamin Garcia's start-up business is succeeding, but he needs 200,000 in additional funding to fund continued growth.  Benjamin and an angel investor agree the business is worth 800,000 and the angel has agreed to invest the 200,000 that is needed.  Benjamin presently owns all 40,000 shares in his business.  What is a fair price per share and how many additional shares must Benjamin sell to the angel?  Because the stock will be sold directly to an investor, there is no spread; the other flotation costs are insignificant.

Explanation / Answer

FACE VALUE OF SHARE = 800000/40000

= 20 PER SHARE

ADDITIONAL SHARES THAT BENJAMIN MUST SELL TO ANGEL = 200000/20

=10000 SHARES

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