Problem 15-1 Venture Capital (LO1) You have purchased 1 million shares in a rest

Question

Problem 15-1 Venture Capital (LO1) You have purchased 1 million shares in a restaurant chain venture. At this zero-stage investment, your company's assets are $180,000 plus the idea for your new product. Look back at your restaurant chain venture. Suppose that when you first approach your friendly VC, he decides that your shares are worth only $1.35 each. a. How many shares will you need to sell to raise the additional $1,944,000? Shares b. What fraction of the firm will you own after the VC investment? (Round your answer to 1 decimal place.) Fraction of own shares

Explanation / Answer

1)

Number of shares = additional capital / share price

   = 1944000 / 1.35 = 1440000

2)

total firm value = 180000 + 1000000*1.35 + 1440000*1.35 = 3474000

VC share = 1440000*1.35 / 3474000 = 56.0%

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