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20 July, 10:47

You have purchased 1 million shares in a restaurant chain venture. At this zero-stage investment, your company's assets are $100,000 plus the idea for your new product. Suppose that when you first approach your friendly VC, he decides that your shares are worth only $0.40 each.

a. How many shares will you need to sell to raise the additional $1,370,000?

b. What fraction of the firm will you own after the VC investment? (Round your answer to 1 decimal place.)

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  1. 20 July, 12:26
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    a. 3,425,000 shares

    b. 22.60%

    Explanation:

    The calculations are presented below:

    a. The number of shares sold is shown below:

    = Additional amount : share worth value

    = 1,370,000 : $0.40

    = 3,425,000 shares

    b. The fraction would be

    = Number of shares purchased : Total number of shares after considering the additional amount

    = 1,000,000 : 4,425,000

    = 22.60%

    The total number of shares would be

    = 1,000,000 + 3,425,000

    = 4,425,000
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