A Venture capital company buys 400,00 shares of a start-up's stock for $5million. If the company has 1.6 million shares outstanding prior to the purchase, what is the company's pre-money value? What is its post-money value?
It is a financing strategy that rich investors or investment banks undertake when they spot a start-up with bright prospects. This may be in the form of yearly income, a new technology, good employee turnover etc. In return for investing, they seek a certain share of profit as a pay-off.
Answer and Explanation:
The pre-money value of the company is calculated as:
(Value of shares sold/No. of shares sold) x No. of shares outstanding
= $5,000,000/400,000 x...
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from Accounting 101: Financial AccountingChapter 11 / Lesson 6