CFA Practice Question

There are 195 practice questions for this study session.

CFA Practice Question

In a venture capital investment project, the post-money valuation is $4 million. The investor is going to invest $3 million, and the existing number of shares is 1 million. How many newly issued shares will the investor get?
A. 0.75 million.
B. 2 million.
C. 3 million.
Explanation: 3 / (4-3) x 1 million.

User Contributed Comments 4

User Comment
xavi This is a funny way of showing this.
It's more intuitive to think the VC adds to equity
3 million. So the new equity pool is 4 million. Of this 4 million the VC has 3/4 stake. 3 million.
vi2009 I chose 0.75million, but it is 3million because new issues of shares need to be in place ... therefore increase shares from 1 million to 4 million ... 3/4 * 4 = 3 million shares for new investor.
JimM Way I got it was asking what the PRE value was.
PRE = POST - New.
POST = $4 MM
New = $3 MM
Therefore PRE = $1 MM with 1 million shares. Therefore $1 / share and new investor gets 3 million new shares.
richmondo What if there isnt a share issue but instead the new investor buys shares in the company. Then 0.75 million is the correct answer
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