You are considering two rounds of venture capital financing for your business. In five years, the stepping out year cash flow is expected to be $2,500,000; the required return is expected to be 13% and the perpetual growth rate is expected to be 5%, giving a cap rate of 8%. The entrepreneur plans to have a first round financing of $2 million today. You currently hold 5 million shares of stock and plans to retain these holdings. The first-round financier has a required return of 60%.

a) How many additional shares must you issue to the investor?

b) How many shares must you have authorized to make this deal?

c) What percentage ownership will the investor hold after the investment?

d) Find the price per share after the financing round.

e) Find the pre-money and post money values of the company.

f) Who controls the company after the investment is made?

3) Now, a second financier wants in on the action and offers $1,000,000 at the end of year 4.

The required return for this investment is 25%.

a) Find the number of shares issued to, the percentage ownership and the price per share

paid by the second round financier.

b) Find the percentage ownership for the first round investor and you after the second

round of financing.

b) Find the pre-money and post money values after the second round of financing.

c) At the end of five years, what percentage of the company do you still own?