The following list provides us the chronological equity investments received by a startup:

Day 0: The entrepreneur invested $50,000 into this startup. In exchange, he received 200,000 shares of common stocks.

Year 2: A venture capital (VC) firm invested $600,000 into this startup. In exchange, the VC firm received 800,000 shares of convertible preferred stocks. These convertible stocks were participating, carried 2X multiple return preference, and promised $0.50 per share per year dividend (cumulative).

Year 3: A business angel invested $250,000 into this startup. In exchange, the angel received 250,000 shares of convertible preferred stocks. These convertible stocks were not participating, carried 3X multiple return preference, and promised $0.40 per share per year dividend (cumulative).

a. If this startup is acquired by a competitor at the end of Year 7 for $6,400,000, please calculate the exit payments to each equity holder.

b. Lets assume that everything else stayed the same, but the venture is sold for $8,000,000. Please recalculate the exit payments to each equity holder.

c. Lets assume that this venture has a certain amount of debt, which has to be paid before any payment is made to the equity holders. At what debt level will the angel investor be indifferent between converting the preferred stocks and keeping them?