XYZ Company is an electronic gaming company, the company founders, believe that their unique gaming system will allow them to achieve a subsequent (Year 3) $100 million venture value with a one-time initial $2 million in venture financing. Similar firms in the marketplace are currently seeking multistage financing amounting to $10 million to achieve comparable results. The founders have organised with one million shares and are willing to grant venture investors a 100% annual return on their business plan projections.

A. What percentage of ownership must be sold to grant the 100% annual return for the three years of investment? Show all working.

B. What is the resulting configuration of share ownership (starting from the one million founders shares)? Show all working.

C. Suppose the first-round venture investors dont agree with the business plan predictions and want to price the deal assuming a second round of financing in Year 2 of $8 million with a 40% return. What changes? Show all working.

D. Suppose the venture investors agree with the founders assessment, price the deal accordingly (as in Part B), and turn out to be wrong with an additional $8 million at 40% injected for the final year. What is the impact on the founders and round-one investors final ownership assuming the second round is funded by outsiders? Show all working.