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,