David Founds a Company and Goes Through the Investment Rounds

question 76

Multiple Choice

David founds a company and goes through the investment rounds shown below: $$\begin{array} { l l c c } \text { Round } & \text { Source } & \text { Price } & \text { Number of Shares } \\\hline \text { Class A } & \text { Self } & \$ 0.50 & 400,000 \\\text { Class B } & \text { Angel } & \$ 1.00 & 500,000 \\\text { Class C } & \text { Venture Capital } & \$ 1.50 & 300,000 \\\text { Class D } & \text { Venture Capital } & \$ 2.25 & 400,000\end{array}$$ He decides to take the company public through an IPO, issuing 2 million new shares. Assuming that he successfully completes the IPO, the net income for the next year is estimated to be $8 million. His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses, which is 15.0. What share of the company will David own after the IPO?

• A) 16%
• B) 22%
• C) 11%
• D) 14%

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Definitions:

Union Involvement

The participation and influence of labor unions in negotiating wages, benefits, and working conditions, and protecting the rights of their members.

Seniority

Length of the worker’s employment, which may be used for determining order of promotion, layoffs, vacation, etc.

Employee-related Decisions

Decisions made by an organization that directly affect its workforce, including hiring, promotions, terminations, and policy changes.

Promotions

The advancement of an employee's rank or position in an organizational hierarchy, often accompanied by increased responsibilities and salary.