Equity Stake Calculation in Equity Investment

Hi all,

I got a quick finance question.

Let's say Company B is investing equity in Company A. Company A holds 100% equity stake in the project.

Based on unlevered DCF analysis, NPV of this project is $100m (aka the enterprise value/equity value).

The total cost required to start this project is $60m. And Company A is looking for an equity investor who can inject $50m. The remaining $10m will be sourced via debt.

In this case, if Company B invests $50m, what would Company B's equity stake in Company A be?

1) 50% ($50m equity investment / $100m unlevered NPV valuation)

2) 55.6% ($50m equity investment / ($100m NPV less $10m debt)

Thanks much,

MK

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