Part 1. Becky sought to raise $9 million in private placement of equity in her early stage Internet Company. She projected net income of $22 million in year 5 and knew that comparable companies traded at a price range of 10 times earnings (i.e. multiple of 10). She approached Mr. Lee of Alliance Capital about an investment. What share of the company would Mr. Lee require today if his required rate of return (RRR) were 50%.

Answer: _____________________________________________

Part 2. Assume that Mr. Lees ownership share will be 23.5% (its not but for the purpose of this problem make this assumption). Becky is the sole owner of her company and has 2,000,000 shares of stock at a .10/share par value. Continuing with Part 1, how many shares of stock will Mr. Lee receive for his $9 million investment.

Answer: _____________________________________________

Part 3. Continuing with Part 2, Mr. Lee expects that a future round of financing (likely in year 3) will be required to completely fund Beckys Internet company to exit. He believes that to support this future round, an additional 15% of the company will have to be sold. What % of the company should Lee demand to keep his ownership share undiluted? Continue to assume that Lees pre-dilution protected ownership percentage is 23.5% as stated in Part 2.

Answer: RR ____________________ Ownership % ____________________