In the context of the VC method, describe how to address dilution to correctly determine the amount of ownership an investor would require for a staged investment.

Refer to Tables 13.1 and 13.2.

data from table 13.1

data from table 13.2

Transcribed Image Text:

Income statement information Earnings before interest and after tax Cash flow information External funds required to support operations 0 2 Year 3 5 ($500,000) ($200,000) $400,000 $1,400,000 $2,500,000 $700,000 $700,000 $700,000 $700,000 $700,000 Equity capital raised $3,240,927 Beginning cash balance $3,240,927 $2,642,564 $2,020,267 $1,373,077 Uses of cash $700,000 $700,000 $700,000 $700,000 $700,000 $700,000 Cash invested in marketable securities $2.540,927 $1,942,564 $1.320,267 $673,077 Return on invested cash $101,637 Ending cash balance $2,642,564 $77,703 $2,020,267 $52,811 $1,373,077 $26,923 $700,000 999 Investor valuation and ownership allocation Investor hurdle rate Continuing value earnings multiplier Continuing value of venture Required future value of investment Ownership share required 50.00% 45.00% 40.00% 35.00% 30.00% 25.00% SO 988 SO 15 $37,500,000 $24,610,789 65.63%