John Thompson, CEO of WVU, Inc., wants to raise $$5$ million in a private equity in his early$-$

stage venture. Thompson projects net income of $$5$ million in year five $($five years from now$)$

and knows that comparable companies trade at a price to earnings ratio of $48.$

On further analysis and discussion, Samantha and John agree that the company will probably

need another round of financing in addition to the current $$5$ million. Samantha believes that

NewVenture will need an additional $$3$ million in equity at the beginning of year $3.$ While

Samantha, the only first round investor, will require a $50\%$ return, Samantha feels that round $2$

investors, in recognition of the progress made between now and then, will probably have a

hurdle rate of only $30\%.$ As before, a professional management team should have the ability to

own a $17\%$ share of the company by the end of year $5.$

a$.$ Based on this new information, what percent of the company should Samantha seek

today $($as percent with two decimal places $($EX:$12\mathrm{.}34\%))?$

Problem Set ID $82$

Gentry GEB$5114$ Homework $82$

b$.$ What price per share should she be willing to pay?

c$.$ What percent of the company will the Round $2$ investors seek?

d$.$ What price per share will they be willing to pay?