I need help for part f and g Rick Smith CEO of XYZ Inc wants

I need help for part f and g.

Rick Smith, CEO of XYZ, Inc., wants to raise S5 million in a private equity in his early stage venture. Smith conservatively projects net income of S8 million in year five (five years from now) and knows that comparable companies trade at a price to earnings ratio of 16x. a. If the Price to Earnings ratio for a company like Rick\'s is 16X, how much does he b. Sitting at his desk at the end of year 01, Rick wants to raise S5 million. If a Venture c. If the company has 1,000,000 shares outstanding before the private placement, how d. What percent of the company should be buy if her required rate of return is only 30%? expect his company to be worth at the end of year 5 Capitalist wants a rate of return of 50% per year, what percent of the company should the venture capitalist ask for to earn her return in 5 years? Many shares should the venture capitalist purchase? Rick 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 (assume VC wants the standard 50%)? e. Assume now that the company is worth S115 million and that Rick needs to raise S5 million in a private equity. Marie, the venture capitalist, is still making her $5 million investment. There are 1,000,000 shares outstanding initially what price per share should she agree to pay if hcr required rate of return is 50%? g. How many shares would the VC purchase if her required rate of return is 30%? Remember, calculations are performed as if today is after the close of business in year 0 and tomorrow is the start of business for year1. So, an investment 5 vears from now would be at the end of year 5.

Solution

The answer to question number

f. The Value of the company is $ 115 Million

No of share outstanding =1000000

Rate of return is 50%

Amount of investment required $115 million -$5 million in private equity

                                           =$115000000-$5000000

                                           =$110000000

Since venture capitalist is still making $ 5 million investment

Therefore the rest have to raised ie

                                   =$105000000

VC requirement at the end of year 5 =$105000000*(1+50%)⁵

                                                                     ^=$797343750

^{The maximum price per share to be paid =$797343750/1000000}

                                                                  ^=797.34.

^{g. How many shares needed to be purchased if the required rate of return is 30%}

                ^{rate of return =30%}

^{VC requirement at the end of the 5th year =}$105000000*(1+30%)⁵

                                                                   ^{=$ 389857650}

        ^{There fore the number of shares VC should purchase is $389857650-$5000000}

   ^{384857560 shares.}