Question
After further negotiation Roger and Benedicta agreed to use standard preferred stock after all. In her counter-offer, however, Benedicta has proposed that her shares pay
After further negotiation Roger and Benedicta agreed to use standard preferred stock after all. In her counter-offer, however, Benedicta has proposed that her shares pay cumulative non-cash dividends of 10% of the original coast per share. At conversion, the accrued dividends would convert into common at the original cost per share paid by Benedicta. again, as far as Roger can tell, Benedicta has priced the deal assuming only one round of financing would be required and as if non-dividend bearing standard preferred stock with a 50% required rate of return were used.
What effect does using the security Benedicta proposed have on her effective rate of return? Defacto, how much of the company does Benedicta own?
Investment amount is $5 million
Venture capitalist share is 38% for 50% rate of return
The value of company for 5 years is $100 million
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Step: 1
Benedicta proposes preferred stock with cumulative noncash dividends of 10 per year which would convert into common stock at the original cost per share at the time of conversion The investment amount ...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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