A potential investor is seeking to invest $200,000 in a venture, which currently has 100,000 shares held by the founders. You expect the venture to produce $300,.000 in income by the end of year five. You also know that a similar venture produced $500,000 in income and sold shares to the public for $2,500,000. Assume the required rate of return is 40%.

1. What is the value of the venture in year five?

2. What is the percent ownership of the venture that must be sold in order to provide the venture investor's target return?

3. What is the number of shares that must be issued to the new investor in order for the investor to earn his target return?

4. What is the issue price per share?

5. Compute the pre-money and post-money value of the business.

6. Assume you get a second round of financing at the end of year 2 worth $100,000. Compute the % ownership acquired by the second group of investors if they require 25% return.

7. What is the number of shares that must be issued to the new investors?

8. What is the issue price per share?

9. Compute the pre-money and post-money value of the business.

10. The founder is awarding 5% ownership in the venture as incentive compensation for his employees. What is the remaining percent ownership of the founder?