Problem
Robert Lee is an entrepreneur who sells sports equipment such as dumbbells, yoga mats, skipping ropes, resistance bands, static bicycles, and others. This sports equipment is imported from several countries. The company was just founded one year ago with $200,000 of capital equity, and he received 2,000,000 shares of common stock. During the COVID pandemic, people's awareness to exercise and live healthy was also a factor in the increasing sales of Robert Lee's sports equipment business in the last eight months. For that reason, because of the rapid business development, Robert Lee needed additional capital of $ 1,000,000 to carry out his business plan. Robert Lee had no additional equity funds to invest, so he negotiated with a venture investor who was willing to invest $1,000,000 for an ownership position in the firm in the form of newly issued shares of common stock. The investor and founder agree that the horizon (time to exit) for the investment should be six years. The investor expects a 50 percent compound annual rate of return for the entire sixth years. Looking ahead six years, we can say that the successful venture is expected to produce $1,000,000 per year in income at that time. To note, a similar venture recently went public. Then, they sold their shares to the masses for $20,000,000 (denoted as P below). Additionally, their last twelve months of income was $1,000,000 (denoted as E below).
Task
i. What is the prevailing price per dollar of revenue in the sporting goods sector? Then, estimate the venture's exit value six years from now. Moreover, discounting the $20,000,000 exit value by 50 percent per year for six years, what is the present value?
ii. Calculate acquired % of final ownership and shares to be issued.
iii. Calculate the issue share price, using present values and future values to calculate premoney and post money.