Question

Suppose a company raises $22,500,000 in addition to 32 million shares outstanding and in exchange for 50% ownership in the form of Convertible Preferred Securities (with a 1.5x Liquidation Preference and a 12% Cumulative Dividend). The # of shares in New Equity Pool is...:

a. 54,500,000
b. 22,500,000
c. 64,000,000
d. None of the above

Answer 1

The number of shares in the New Equity Pool is approximately 61,643,365.

Step-by-step explanation:

The number of shares in the New Equity Pool can be calculated by dividing the amount raised ($22,500,000) by the Liquidation Preference (1.5x) and the Dividend (12%).

Liquidation Preference determines the amount a preferred shareholder will receive in the event of a liquidation event. In this case, the Liquidation Preference is 1.5 times the amount invested ($22,500,000 x 1.5 = $33,750,000).

The Dividend is the percentage of the investment that is paid as a fixed annual dividend. In this case, the Dividend is 12% ($22,500,000 x 12% = $2,700,000).

The number of shares in the New Equity Pool is calculated by dividing the total amount raised ($22,500,000) by the sum of the Liquidation Preference and the Dividend ($33,750,000 + $2,700,000 = $36,450,000).

Therefore, the number of shares in the New Equity Pool is approximately 61,643,365 (22,500,000 / $36,450,000 = 0.617 x 100,000,000 shares).