23 February, 22:01

# Use the following information for Problems 35 through 40 A potential investor is seeking to invest \$1,000,000 in a venture, which currently has 2 million shares held by its founders, and is targeting a 50% return five years from now. The venture is expected to produce 1 million dollars in income per year at year 5. It is known that a similar venture recently produced \$2,000,000 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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1. 23 February, 22:24
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0.3797 or 37.97%

Explanation:

According to the scenario, computation of the given data are as follow:-

Wants Rate on return on investment = 50%

Expected value of return on investment = invested amount * (1+g) ^t

= \$1,000,000 * (1+50%) ^5

= \$1,000,000 * 7.59375

= \$7,593,750

Similar venture would achieve valuation of \$20,000,000 for \$2,000,000. We can expect that company would achieve similar valuation of \$20,000,000 in 5 years from now.

Investor's share value at 5 years = \$7,593,750 : \$20,000,000

= 0.3797 or 37.97%