A venture capitalist firm wants to invest $400,000 in your company Mocs Inc. In four years, you expect your net income to be $1,000,000. The common stock of Vols Corporation, a comparable firm, currently trades in the over-the-counter market at $10 per share. Nash-Vegass net income (earnings) for the most recent year was $500,000 and the firm has 100,000 shares of common stock outstanding.

Apply the VC method to determine the value of the Chatt-Town at the end of four years. (5 points)

1. What is the comparable firms EPS?

EPS = Comparable firms net income / comparable firms # of shares outstanding =

2. What is the comparable firms P/E multiplier =

3. What is Chatt-Towns projected value at year 4 =

4. If an investor wants a 20% compound annual rate of return on this investment, what is the present value of Chatt-Town Industries?
5. What percentage of ownership of Chatt-Town Industries venture will you have to give up to the VC firm for its $2 million investment?

6. Lets say that the owner of Chatt-Town Industries initially issued 1,000,000 shares of common stock when creating the venture. What is the number of new shares that will need to be issued so that the investor will achieve his/her desired percentage of ownership (equity)?

7. How many total shares are now in existence?

8. What is the share price? (In other words, how much did the investor pay per share for their $200,000 investment)?

9. What is this ventures pre-money valuation?

10. What is the ventures post-money valuation?