Pre-money valuation calculation - NPV of the project?

Hey all,

Let's say Company B is investing equity in Company A.

Company A has one shareholder, holding 100% of the equity stake in the company. The company has zero revenue, zero debt, etc. It has an idea of the business and looking for an equity investor. Company A's owner has contributed minimal equity in the company. The owner will not contribute any equity.

Based on the unlevered DCF analysis, NPV of Company A's project is $100m (including initial capex of $60m, which is the construction cost)

To fund $60m construction cost, Company A is looking for an equity investor who can inject $50m. The remaining $10m will be sourced via debt. No convertible stuffs, just plain cash injection.

Company B invests $50m, and thinks their equity stake of this company is:

Pre-money valuation: $100m (unlevered NPV of the project)

Equity injection by Company B: $50m

Post-money valuation: $150m

Company B's equity stake in Company A: 33.3% ($50m/$150m)

Here's my question:

  1. Is unlevered DCF of initial capex cash outflows and future cash inflows (aka, the unlevered NPV of the project) simply the pre-money value? (the $100m). And, does this unlevered NPV of the project basically the enterprise value of Company A?

  2. If not, what other factors should I look it? Should unlevered NPV "exclude" the initial capex cash outflows and only factor in future cash inflows?

Thanks all,

MK

3 Comments
 

Could you please elaborate?

For example,

Cash flow yr 0=-$10m

Cash flow yr 1-5=$10m

NPV @ 10% = $25m

In this case, you are saying if I am putting $10m equity, than the pre-money valuation is $15m ($25m-$10m)? Or is pre-money the NPV value of $25m?

 

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