A first-round venture capitalist is contemplating a $3 million investment in a company that expects to require an additional $2 million in a second round. The assumed exit value is $25 million at Year 5. The venture capitalist expects to harvest his investment at that point through sale of his stock to an acquiring company. Suppose that the discount rate is highest in the early years and becomes lower after a while. For example, assume that the discount rate is 60 percent in the first year, stays at 50 percent in years two and three, and falls to 40 percent in the fourth year. In addition to determining the appropriate compound interest rate for the current round, the first-round VC must also determine the compound interest rate most likely to be applied in the second round. Suppose, for example, that the company might be able to delay the timing of the first round by the end of year 3 and the second round until the end of year four, respectively. Assume there are 1 million shares outstanding before the investment.

What would be (i) the price per share for round 2; (ii) the price per share at the exit time and (iii) the corresponding wealth of the entrepreneurs at the exit time? Show your solution procedure either in Excel or in hand solution procedure.