Consider a deal where the investor offers an investment of $3.5M at a pre-money valuation of $6.5M for a start-up company. Convertible preferred stock will be issued to the investor with an annual dividend rate of 15%. The company is expected to be sold in two years. Suppose the number of common shares outstanding prior to this round of financing is 800,000.

A. What is the number of shares obtained by investors?

B. What is the conversion threshold?

C. Calculate the cash flows to preferred shareholders and common shareholders in each case when the exit value is $5M, 10M, 15M.