EBV is considering a $5 million Series A investment in Newco, which is an electronic payment startup similar to SQ in Problem 1. The founders of Newco currently hold 10M shares of common stock. EBV proposes to structure the investment in the form common stock. With the series A investment, EBV expects to exit in five years. After 5 years, Newco's expected income is $1,000,000. The expected return of EBV from the investment is 50%.

Question a

The twelve-year average stock price of SQ is $40.5 in the fiscal year of 2019. What is the P/E ratio of SQ in the fiscal year of 2019?

Hint: find the (diluted) earnings per share in the financial statement.

Question b

What is the pre-money valuation of Newco?

Question c

At what price does Newco issue its new shares to EBV?