1. A potential investor is seeking to invest $2,000,000 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 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 $30,000,000. What is the percent ownership of our venture that must be sold in order to provide the venture investor’s target return?
a. 33.33%
b. 35.85%
c. 52.71%
d. 75.94%
2. What is the number of shares that must be issued to the new investor in order for the investor to earn his target return?
a. 558,846
b. 1,163,659
c. 4,156,276
d. 2,578,138
3. What is the issue price per share?
a. $0.859
b. $3.580
c. $0.317
d. $0.158
4. For early stage ventures, which of the following is a strong reason for having an equity component in employee compensation?
a. the expected deferred and tax-preferred compensation allows the venture to pay a lower current compensation to employees
b. as a way to motivate employees to strive for the same goal of high equity value
c. because any dividends received as part of the equity compensation reduces taxable income
d. both a and b
e. all of the above