weded Starware Software was founded last year to develop software for gaming applications. The founder initially invested $700,000 and received 12 million shares of stock. Starware now needs to raise a second round of capital, and it has identified a venture capitalist who isinterested in investing. This venture capitalist will invest $1.40 million and wants to own 22% of the company after the investment is completed.a. How many shares must the venture capitalist receive to end up with 22% of the company? What is the implied price per share of this funding round?b. What will the value of the whole firm be after this investment (the post-money valuation)?a. How many shares must the venture capitalist receive to end up with 22% of the company? What is the implied price per share of this funding round?The venture capitalist will receive ☐ million shares. (Round to three decimal places.)

Total shares after investment of venture capitalist is calculated as shown below:

Answered: Starware Software was founded last year…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 9MC

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Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The companys EBIT was 120 million last year and is not expected to grow. PizzaPalace is in the 25% state-plus-federal tax bracket, the risk-free rate is 6 percent, and the market risk premium is 6 percent. The firm is currently financed with all equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. If the company were to recapitalize, then debt would be issued, and the funds received would be used to repurchase stock. As a first step, assume that you obtained from the firms investment banker the following estimated costs of debt for the firm at different capital structures: a. Using the free cash flow valuation model, show the only avenues by which capital structure can affect value.
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Starware Software was founded last year to develop software for gaming applications. The founder initially invested $900,000 and received 8 million shares of stock. Starware now needs to raise a second round of capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest $1.40 million and wants to own 12% of the company after the investment is completed. a. How many shares must the venture capitalist receive to end up with 12% of the company? What is the implied price per share of this funding round? b. What will the value of the whole firm be after this investment (the post-money valuation)?
Starware Software was founded last year to develop software for gaming applications. The founder initially invested $900,000 and received 10 million shares of stock. Starware now needs to raise a second round of capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest $1.20 million and wants to own 39% of the company after the investment is completed. a. How many shares must the venture capitalist receive to end up with 39% of the company? What is the implied price per share of this funding round? b. What will the value of the whole firm be after this investment (the post-money valuation)?
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a. John Thompson, CEO of NewVenture, Inc., seeks to raise $5 million in a private placement of equity in his early stage venture. Thompson conservatively projects net income of $5 million in year five and knows that comparable companies trade at a price earnings ratio of 20X. What share of the company will a venture capitalist require today if her required rate of return is 50% per annum? b. If the company has 1,000,000 shares outstanding before the private placement, how many shares should the venture capitalist purchase? What price per share should she agree to pay if her required rate of return is 50%? (Note: Assume investment is in standard preferred stock with no dividends and a conversion rate to common of 1:1) c. John feels that he may need as much as $12 million in total outside financing to launch his new product. If he seeks to raise the full amount in this round, how much of his company will he have to give up? What price per share will the venture capitalist agree to pay if…
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