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Pinnacle Venture, PE investor is considering investing $4000 million in the  equity of Best Systems, a start-up IT company. Pinnacle ventures required rate of  return from this investment is 40% and it’s planned holding period is 5  years. Best Systems has projected an EBITDA of $5000 million for year 5. An  EBITDA multiple of 6 for year 5 is considered

Pinnacle Venture, PE investor is considering investing $4000 million in the  equity of Best Systems, a start-up IT company. Pinnacle ventures required rate of  return from this investment is 40% and it’s planned holding period is 5  years. Best Systems has projected an EBITDA of $5000 million for year 5. An  EBITDA multiple of 6 for year 5 is considered

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Pinnacle Venture, PE investor is considering investing $4000 million in the 
equity of Best Systems, a start-up IT company. Pinnacle ventures required rate of 
return from this investment is 40% and it’s planned holding period is 5 
years. Best Systems has projected an EBITDA of $5000 million for year 5. An 
EBITDA multiple of 6 for year 5 is considered reasonable. At the end of year 5, 
Best Systems is likely to have a debt of $2000 million and a cash balance of 
$600 million.
i. What ownership share in Best Systems should Pinnacle Venture ask for?
ii. What is the post-money investment value of Best Systems equity?
iii. What is the pre-money investment value of Best Systems?

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