Week 9 - FIN 534 Financial; Management Week 9 Problem...

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FIN 534 Financial; Management Week 9 Problem Solutions Chapter 23 3. a. After the funding round, the founder’s 8 million shares will represent 80% ownership of the firm. To solve for the new total number of shares (TOTAL): 8,000,000 = .80*TOTAL So TOTAL = 10,000,000 shares. If the new total is 10 million shares, and the venture capitalist will end up with 20%, then the venture capitalist must buy 2 million shares. Given the investment of $1 million for 2 million shares, the implied price per share is $0.50. b. After this investment, there will be 10 million shares outstanding, with a price of $0.50 per share, so the post-money valuation is $5 million. 7. First, compute the cumulative total number of shares demanded at or above any given price: Price Cumulative Demand 14.00 100,000 13.80 300,000 13.60 800,000 13.40 1,800,000 13.20 3,000,000 13.00 3,800,000 12.80 4,200,000 The winning price should be $13.40, because investors have placed orders for a total of 1.8 million shares at a price of $13.40 or higher. 15. Investors will receive a total of 10 million rights. Since it takes ten rights to purchase one share, they will be able to purchase 1 million shares. At a price of $40/share, the company will be able to raise ($40/share)
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This note was uploaded on 06/15/2010 for the course FIN FIN534 taught by Professor Dr.kung during the Fall '09 term at Strayer.

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Week 9 - FIN 534 Financial; Management Week 9 Problem...

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