A potential investor is seeking to invest $150, 000 in our venture, which curren
ID: 2735921 • Letter: A
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? $10, 000, 000 $1, 000, 000 $2,000, 000 $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? 33.33% 75.94% 56.95% 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? 3,155,844 1,578,138 1,323,048 2,578,138 What is the issue price per share? $0.1939 $0.1203 $0.3168 $0.1584 $0.1133Explanation / Answer
1. Answer (B) 2000000
Calculation of value of business at the end of 5th year :
Required future value = $150000 * (1.50)power to 5
= $150000 * 7.59375
= $1139062.50
Total value of business at 5th year= PE ratio * terminal net income
PE ratio = 1/ROE
= 1/.50
= 2
Total terminal value = 2*1000000
=$2000000
2.) Answer (C)
Percentage of ownership must be issued to the public
= Require future value/Terminal value of business
= $1139062.5/$2000000
= 56.95%
c) Answer (C)1323048
New shares to be issued = % of owner ship/1 - % owner ship * old number of shares
= 0.5695/0.4304*1000000
= 1323048(approx)
.d) Answer (D) .1133
Share price = Investment / new number of shares
= $150000/1323048
= $0.1133
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.