FILL IN THE CHART BELOW?

Assume a venture capitalist became your partner by injecting $500k into common equity of your company.

The venture capitalist / partner owns 50% of the entity, a "C" corporation (fully taxable entity).

Assume the entity is stabilized and sustaining and produces the following cash flows:

These are considered retained earnings after CapEx and all debt service; able to be distributed to owners without any detriment to the entity.

Year 1 2 3 4 5

Cash Flows 250,000 265,000 275,000 277,000 285,000

These cash flows are distributed to owners of the corporation.

Furthermore, at the last day of year 5, the firm is sold for 5 times cash flow.

The Venture capitalists tax rates are as follows:

Ordinary income 28%

Capital Gains 15%

What is the IRR achieved for the VC?

Year 0 1 2 3 4 5

Total Dividends Paid

Dividends to VC

Tax On Dividend

Net To VC

Gross sales Price

Proceeds to VC

Basis of Investment

Capital Gains

Tax on Cap Gains

Net Proceeds from Sale

VC Cash flows

Utilize the data from question above, with the following exceptions:

Assume the capital injection was in the form of preferred stock which carries a 10% rate.

Assume the VC has $500k in preferred AND 50% of the common for this investment.

Assume each year, all earnings (cash flow above) is paid out to preferred and common equity holders.