You are working for a venture capitalist (VC). The VC is interested in acquiring a one-third stakein a start-up. The total value (i.e., PV of future expected cash flows) of the start-up is one of$30M, $45M, $60M, $75M, $90M. The VC regards the five outcomes as equally likely.The start-up is currently wholly owned by its founder. The founder knows the details of thestart-up's prospects, and so knows the start-up's total value.The founder needs liquid cash to cover personal expenses, and moreover is risk averse andwould like to partially diversify. For these reasons, the founder values any offer from the VC at50% more than the amount of the offer. For example: If the VC offers $10M for the one-thirdstake, the founder values this offer at $15M.Assume that if the founder is indifferent between accepting and rejecting an offer then thefounder accepts.The VC seeks to maximize expected profits.What offer(s), if any, should the VC make? Show your work by filling out the following table:Vc's offerExpected VC's profit$6.67M$10M$13.34M$16.67M$20M

Venture capitalist refers to when the capital is invested in a project and there is a substantial…

Answered: You are working for a venture…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter11: Venture Capital Valuation Methods

Section: Chapter Questions

Problem 3EP

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