Question: Firmin Technologies is expected to earn $6.25 million (NI) in year 5, when the firm is expected to be sold to an acquiring company. Comparable companies have a P/E ratio of about 18. The initial investment the VC is being asked to make is $3.5 million. Before that investment is made there are 1 million shares outstanding. The VC will get new shares. (There is expected to be no debt or available cash at the investment horizon.)
If the VC requires a 70% target return, how much stock should he demand? Please give total number of shares with no commas (for example 2 million is 2000000.)