A potential investor is seeking to invest $150, 000 in our venture, which curren

Question

A potential investor is seeking to invest $150, 000 in our venture, which currently has 1, 000, 000 shares held by us founders. We do not expect our venture to produce income in the first four yrs; in the fifth year $1, 000, 000 in income will be produced. We know that a similar venture produced $5,000, 000 in income and sold shares to the public for $10, 000, 000. Investors expected rate of return is 50%. What is the value of our venture at the end of the 5^th yr? a. $10, 000, 000 b. $1, 000, 000 c. $2,000, 000 d. $5,000, 000 What is the percent ownership of our venture that must be sold in order to provide the venture investor's target return? a. 33.33% b. 75.94% c. 56.95% d. 45.00% What is the number of shares that must be issued to the new investor in order for the investor to earn his target return? a. 3,155,844 b. 1,578,138 c. 1,323,048 d. 2,578,138 What is the issue price per share? a. $0.1939 b. $0.1203 c. $0.3168 d. $0.1584 e. $0.1133

Explanation / Answer

Answer:23 c. 2,000,000

Value of ventures at the end of year 5:

=(sold to public/similar ventures produced income)*income in year 5

=10,000,000/5,000,000*1,000000

=2,000,000

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