Delta Games Private Limited is a digital gaming company creating fun-to-play games for millenials. Your firm is expecting to make a Series-A investment of $5 Mn in the Delta. Your firm's expected rate of return is 40% for a comparable investment. Before your investment, Delta's ownership is as follows: Founders: 50%, Seed Ventures: 50%, and it has 1,000,000 shares outstanding. This year. Gamma Games, a competitor of Delta had a PAT of $20 Mn, and was sold for $200 Mn. You should expect Delta to achieve an exit in Year 5 in similar proportions. In Year 5, Delta is expected to generate a PAT of $10 Mn. You expect no further capital raise to be done by Delta to achieve an exit in 5 years. 1 .Calculate the expected value of your firm's investment in 5 years and the stake that your firm must own in Delta 2.Calculate the number of shares to be issued in Series A and the per-share issuance price 3.Calculate the Pre-Money and Post-Money Equity Valuation that your firm should be willing to offer for Delta
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
- Delta Games Private Limited is a digital gaming company creating fun-to-play games for millenials. Your firm is expecting to make a Series-A investment of $5 Mn in the Delta. Your firm's expected
rate of return is 40% for a comparable investment.
Before your investment, Delta's ownership is as follows: Founders: 50%, Seed Ventures: 50%, and it has 1,000,000 shares outstanding.
This year. Gamma Games, a competitor of Delta had a PAT of $20 Mn, and was sold for $200 Mn. You should expect Delta to achieve an exit in Year 5 in similar proportions. In Year 5, Delta is expected to generate a PAT of $10 Mn.
You expect no further capital raise to be done by Delta to achieve an exit in 5 years.
- 1 .Calculate the expected value of your firm's investment in 5 years and the stake that your firm must own in Delta
- 2.Calculate the number of shares to be issued in Series A and the per-share issuance price
- 3.Calculate the Pre-Money and Post-Money Equity Valuation that your firm should be willing to offer for Delta
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