- CFA Exams
- CFA Exam: Level II 2021
- Study Session 15. Alternative Investments
- Reading 41. Private Equity Valuation
- Subject 2. Valuation characteristics and issues in venture capital vs. buyout
CFA Practice Question
Shareholders of company X own 100 shares, which is 100% of equity. If an investor makes a $10 million investment into a company X in return for 20 newly issued shares, the implied post-money valuation is:
B. $60 million.
C. $100 million.
A. $20 million.
B. $60 million.
C. $100 million.
Correct Answer: B
$10 million*(120/20) = $60 million.
The pre-money valuation is $50 million. The initial shareholders dilute their ownership to 100/120=83.33%.
User Contributed Comments 2
| User | Comment |
|---|---|
| vi2009 | Post=Pre + Investment $10million for 20 shares => 1 share = 0.5million therefore, 100 shares = $50 million Post = $50 mm + $10 mm = $60mm |
| Allen88 | Nice, thanks vi2009! |