Given her required rate of return, a private equity investor valued a startup at $6,000 and agreed to provide $2,000 to the startup in exchange for a fair equity stake in the startup. Founders own 500 of the shares and gave additional shares to the private equity investor in exchange for the funding.

How much is each share of the start-up worth? (with one decimal)

Question

Given her required rate of return, a private equity investor valued a startup at $6,000 and agreed to provide $2,000 to the startup in exchange for a fair equity stake in the startup. Founders own 500 of the shares and gave additional shares to the private equity investor in exchange for the funding.

How much is each share of the start-up worth? (with one decimal)

BlackTom AI · Accepted Answer

The question describes a private equity investment where the startup is valued at 6,000 and the investor contributes 2,000 in exchange for equity. Since the stated valuation is the post-money value (the value after the investment), the investor’s ownership portion is 2,000 divided by 6,000, which equals one-third of the company.

To translate ownership into share counts, note that founders currently hold 500 shares. If the investor earns one-third of the total equity, the founders would hold the remaining two-thirds. Let the total number of shares after the investment be T. Then 500 = (2/3) * T, so T = 500 ÷ (2/3) = 500 * (3/2) = 750 total shares post-financing.

The investor thus receives 750 − 500 = 250 shares. The per-share value can be found by dividing the post-money valuation by the total number of shares: 6,000 ÷ 750.

This yields a per-share value of 8.00.

Note on missing options: the prompt provides no answer choices to evaluate; in a typical multiple-choice setup you would compare computed per-share value against the offered options to select the correct one. If you’re given options, you can verify whether 8 matches one of them and choose accordingly.

Key concepts illustrated here include post-money valuation, equity split, proportional ownership, and converting ownership into share counts to derive a per-share price.

Similar Questions

An all equity business is valued at $3M and has 208 thousand shares on issue. What price was each share issued at ? (Round to TWO decimal places and ignore the $ sign).

A company has a debt obligation with a market value of $360,000. The total market value of the firm's assets is $1,000,000. The firm has no other liabilities. The firm has 1 million shares outstanding. What is the current share price?

What is the effect on the financial statements when a company fails to adjust the unearned revenue account for revenues earned at year-end?

Which of the following correctly describes the effects of initially recording prepaid insurance expense when cash is paid to purchase an insurance policy?

Which of the following does not correctly describe an adjusting journal entry that debits rent expense and credits prepaid rent?

Which of the following transactions does not create a deferral?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler