6(a)

6. (15 pts) Chemtech wants to have a venture investor inject $0.5 million at Year 0 and $1 million at Year 2. The founder has 300,000 shares. The founder expects to make a profit until Year 4 when the net income is expected to be $ 400,000. The common stock of Biosystems, a comparable firm, currently trades in the over-the- counter at $30 per share. Biosystems' net income for the most recent year was $300,000 and the firm has 150,000 shares of common stock outstanding. Venture investors want a 50% and 30% compound annual rate of return for rounds 1 and 2, respectively. A. What percentage of ownership is sold during the first round? During the second round? (5 points) B. How many shares will be issued in rounds 1 and 2? (5 points) C. If 6 percent of total equity in Year 4 is set aside for incentive compensation, what is the second-round share price? (5 points)