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Part E A. The following information is for pedagogical purposes only and unlike earlier questions does not deal with real situation. Menlo Ventures provided funding for ABC Company start-up by investing convertible preferred shares. ABC Compay expects to go public in 5 years, at which time it expects to have a post IPO valuation of $ 5 Billion. Until the company goes public, preferred shares will pay 8% annual dividend. a. What % of post IPO equity should VC's shares to be converted in to provide VC its expected return? b. Assume that the percentage ownership agreement remains the same as in a. What actual return VC gets, if the IPO value is $ 15 billion? 2 Billion? What if instead of an IPO, the company is acquired at $ 500 Million in 5 years? Remember that Menlo Ventures have convertible preferred shares. Given VC's hoped-for rate of return VC Investment Horizon Annual interest/Dividend Payments Funding needed Expected Post IPO Value High End Scenario IPO Value Low End Scenario IPO Value M&A scenario price Value given in problem Formula/Calculation/Analysis required Use in Goal Seek 40.0% 5 years 8.00% ($200,000,000) $5,000,000,000 $15,000,000,000 $2,000,000,000 $500,000,000 a.What % of post IPO equity should VC's shares to be converted in to provide VC its expected return? Investment Dividends Conversion value in Five years 0 ($200,000,000) 1 2 3 4 5 VC cash Flow Rate of return IPO Value Conversion Value $5,000,000,000 IPO percentage ownership b.What actual return VC gets, if the IPO value is $ 15 billion? 2 Billion? If instead of an IPO, the company is acquired at $ 500 Million in 5 years? VC's Terminal value Realized VC return (Hint: the easiest solution is to use RATE function. Alternatively you can set up new cash flows) Expected Post IPO Value High End Scenario IPO Value Low End Scenario IPO Value M&A scenario price $5,000,000,000 $15,000,000,000 $2,000,000,000 $500,000,000 Page 1