Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A bias-neutral venture capitalist is contemplating investing $2 million in a start-up company. Company net income at end of year two is expected to be

A bias-neutral venture capitalist is contemplating investing $2 million in a start-up company. Company net income at end of year two is expected to be $2 million. Given the two year length of his investment, his firm requires a 30% internal rate of return compounded annually. Given that the start-up companys product line is in the biotech area, rapid growth is expected and therefore the price to earnings ratio is expected to be 30. Neither future investments nor change in earnings projection is expected prior to the end of the investment term. Using the Sahlman Ownership proportion Formula, compute rounded to the nearest thousandth the percentage of ownership in a start-up company that the venture capitalists should seek and enter digits for in the form (#.###) in the corresponding answer box below. For example, 27.3% would be entered 0.273, 100% would be entered as 1.000.. Answers will be graded correct if within +/- 1% of the correct answer.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Integrated Auditing Of ERP Systems

Authors: Yusufali F. Musaji

1st Edition

0471235180, 978-0471235187

More Books

Students also viewed these Accounting questions

Question

What are the attributes of a technical decision?

Answered: 1 week ago

Question

How do the two components of this theory work together?

Answered: 1 week ago

Question

Discuss five types of employee training.

Answered: 1 week ago

Question

Identify the four federally mandated employee benefits.

Answered: 1 week ago