1. A venture capitalist firm wants to invest $4.5 million in your venture. The venture is not expected to make a profit until year four when the net income is expected to be $9 million. The common stock of ABC Inc., a comparable firm, currently trades in the stock market at $20 per share. ABC net income for the most recent year was $600,000 and the firm has 300,000 shares of common stock outstanding.

a. Whats ABC Inc. P/E valuation?

b. Whats the Ventures projected value at year 4 at similar P/E as ABC Inc.?

c. If VCs want a 45% compound annual rate of return on similar investments, what is the present value of your venture?

d. What percentage of ownership of your venture will you have to give up to the VC firm for its $4.5 million investment?