Question
In: Accounting
A potential investor is seeking to invest $1,250,000 in a venture, which currently has 2,000,000 shares...
A potential investor is seeking to invest $1,250,000 in a venture, which currently has 2,000,000 shares held by its founders, and is targeting a 40% return four (4) years from now. The venture is expected to produce $1,750,000 in income per year at year 4. It is known that a similar venture recently produced $1,750,000 in income and sold shares to the public for $17,500,000.
Suppose that the first round investor believes that the venture cannot reach the E4 projection without an additional $2,000,000 infusion at the end of year two (2) from a second round investor expecting a 25 percent compounded annual rate of return on the money contributed at that time. Assume that the first round investor cannot have his percentage share reduced in the transaction.
7) What ownership percentage of our firm must be sold in order to provide the second round investor with their targeted return? (round to 5 decimal places)
8) What is the founder’s remaining ownership share %? (round to 5 decimal places) 9) What is the total number of shares after the second round financing? (round up to whole shares)
10) What is the new number of shares for the first round investor? (round up to whole shares)
11) What is the new price per share for the first round investor? (round to 5 decimal places)
Solutions
ekkarill92 answered 2 years agoRelated Solutions
A potential investor is seeking to invest $750,000 in a venture, which currently has 1,000,000 shares...
A potential investor is seeking to invest $750,000 in a venture,
which currently has 1,000,000 shares held by its founders, and is
targeting a 45% per annum return for the next five years. The
venture is expected to produce $1,000,000 in income per year at
year 5. It is known that a similar venture recently produced
$2,000,000 in income and sold shares to the public for
$15,000,000.
a. What is the percent ownership of our venture that must be
sold...
28. A potential investor is seeking to invest $1,000,000 in a venture, which currently has 1,000,000...
28. A potential investor is seeking to invest $1,000,000 in a
venture, which currently has 1,000,000 shares held by its founders,
and is targeting a 40% return five years from now. The venture is
expected to produce half a million dollars in income per year at
year 5. It is known that a similar venture recently produced
$1,000,000 in income and sold shares to the public for
$20,000,000.
What is the percent ownership of our venture that must be sold...
As an entrepreneur seeking funds to capitalize your venture, you will be faced with investor proposals...
As an entrepreneur seeking funds to capitalize your venture, you
will be faced with investor proposals regarding their preference
for a funding option. After a review of Chapter 15 and preceding
chapters, consider the following funding options: loan, common
stock, and convertible debenture. Which do you think would be a
better financial choice for a venture capitalist and why?
Investor W has the opportunity to invest $615,000 in a new venture. The projected cash flows...
Investor W has the opportunity to invest $615,000 in a new
venture. The projected cash flows from the venture are as follows.
Use Appendix A and Appendix B.
Year 0
Year 1
Year 2
Year 3
Year 4
Initial investment
$
(615,000)
Taxable revenue
$
81,500
$
76,500
$
66,500
$
61,500
Deductible expenses
(18,000)
(18,000)
(21,500)
(21,500)
Return of investment
615,000
Before-tax net cash flow
$
(615,000)
$
63,500
$
58,500
$
45,000
$
655,000
Investor W...
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The stock is trading at $25 and the risk-free rate is 1%
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December 95 put option means that the strike price of the put is 95
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If IBM stock...
An investor owns 5,000 shares of stock AB, which is currently trading at $100 per share....
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December 92 put option means that the strike price of the put is 92
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If IBM...
Firm C currently has 250,000 shares outstanding with current market value of $42.00 per share and generates an annual EBIT of $1,250,000.
Firm C currently has 250,000 shares outstanding with current
market value of $42.00 per share and generates an annual EBIT of
$1,250,000. Firm C also has $1 million of debt outstanding. The
current cost of equity is 8 percent and the current cost of debt is
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An all-equity firm with 200,000 shares outstanding, has $2,000,000 of EBIT, which is expected to remain...
An all-equity firm with 200,000 shares outstanding, has
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future. The company pays out all of its earnings, so earnings per
share (EPS) equals dividends per share (DPS). Its tax rate is 40%.
The company is considering issuing $5,000,000 of 10% bonds and
using the proceeds to repurchase stock. The risk free rate is 6.5%,
the market risk premium is 5.0%, and the beta is currently 0.90,
but the CFO...
An investor wants to invest his money in a fund which has maintained a steady value....
An investor wants to invest his money in a fund which has
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