Consider a start-up requiring $4.000 initial funding Furthermore, assume that a VC estimates the firm would yield the following cash flows with probability p = 0.8 and 1- p = 0.2, respectively. 3 Year Cash flow P=0.8 1-p=0.2 Expected cash flow 75 percent 67 percent O 51 percent O46 percent O83 percent 0 M -4,000 -4.000 1 480 480 What percentage of equity would the VC demand in a simple common stock capitalization in order to attain an expected IRR 35%? 2 480 480 480 480 4,000 100,000

Consider a start-up requiring $4.000 initial funding Furthermore, assume that a VC estimates the firm would yield the following cash flows with probability p = 0.8 and 1- p = 0.2, respectively. 3 Year Cash flow P=0.8 1-p=0.2 Expected cash flow 75 percent 67 percent O 51 percent O46 percent O83 percent 0 M -4,000 -4.000 1 480 480 What percentage of equity would the VC demand in a simple common stock capitalization in order to attain an expected IRR 35%? 2 480 480 480 480 4,000 100,000

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

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