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?