In June of 2019 Bob and Lila founded a company to make dog collars with GPS tracking chips. They capitalized the company with $100,000 for 1,000 shares.
Today Bob and Lila are analyzing an offer from an Angel investor to purchase $2,000,000 of non-participating, convertible preferred stock.
The angel investor requires a minimum of a 40% annualized return
Bob and Lila are prepared to give up 30% of company for the Angel investment
After reviewing similar technology companies with the Angel investor, Bob, Lila and the investor agree to assume that the company will be sold at the end of 5 years from the date of the Angel investment for a price of 15 times Net Earnings After Taxes for the year (12 months) preceding the sale date (year 5)
Question 1)
Complete (fill in or calculate) the highlighted (olive green) cells in column E of Stacked bar diagram in tab 2.
Question 2)
a) What is the dollar amount of sales proceeds (total price for company) needed to meet the return payoff required by the Angel investor from sale of company at end of year 5 to meet his/her 40% annual rate of return (IRR) investment hurdle? (cell G14)
b) What are the dollar proceeds (payouts) to the Angel investor and to the Founders (Bob and Lila) from the sale from the company (cells G21 and G34)