Question

1. If you invest $5000000 at 10000000 pre-money valuation, What percentage would you want to own after the investment? Why? Show your formulas and calculations.

a. 33%

b. 50%

c. nothing because she is my friend

d. 30%

The formula for net cash flow to invested capital can be calculated as: (Highlight your answer)

a. Net income after tax, plus non-cash charges, less capital expenditures, less additions to net working capital for operations, plus interest expense (tax-affected)

b. Net income before tax, plus non-cash charges, less capital expenditures, less additions to net working capital for operations, less interest expense (tax-affected)

c. Net income after tax, plus non-cash charges, less capital expenditures, less additions to net working capital for operations, less interest expense (tax-affected)

d. Net income after tax, plus non-cash charges, plus capital expenditures, plus additions to net working capital for operations, less interest expense (tax-affected)

Answer 1

Ans:

1. Option A

Reason:

Investment =$5000000

Pre valuation= $10000000

Post valuation = $ (10000000 - 5000000) =$15000000

Investor equity = ?

Investor equity = Investment / post Valuation

= $5000000 / $15000000

= 0.33 or 33%

2. Option A. Net income after tax, plus non-cash charges, less capital expenditures, less additions to net working capital for operations, plus interest expense (tax-affected)

Formula: Net income after tax + non cash charges - capital expenditures - change in working capital + Interest expenses(tax affected)