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Homework answers / question archive / please answer asap thanks A potential investor is seeking to invest $1,000,000 in a venture, which currently has 1,000,000 million shares held by its founders, and is targeting a 40% return five years from now
please answer asap thanks
A potential investor is seeking to invest $1,000,000 in a venture, which currently has 1,000,000 million shares held by its founders, and is targeting a 40% return five years from now. The venture is expected to produce half a million dollars in income per year at year 5. It is known that a similar venture recently produced $1,000,000 in income and sold shares to the public for $20,000,000. What is the percent ownership of our venture that must be sold in order to provide the venture investor’s target return?
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26.89% |
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53.78% |
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75.94% |
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85.00% |
Answer :-
b- 53.78%
Explanations :-
Percent Ownership of venture = investment amount / ownwership reuired
Exit value required by the investor = Investment amount × (1+ target return) ^ number of years
= $10,00,000 × 1.40^5
= $10,00,000 × 5.37824
= $53,78,240
Exit value of the firm = $20,000,000 × ($10,00,000 / $20,000,000)
= $20,000,000 × 0.05
= $10,00,000
Hence, the ownership required = investment amount / ownwership reuired
= $53,78,240 / $10,00,000
= 53.7824%
