You Are a Venture Capitalist Who Is Approached by a Firm

question 58

Multiple Choice

You are a venture capitalist who is approached by a firm that is willing to sell you 30% of the firms common stock.You believe the firm will be worth $800 million dollars when it IPOs in 5 years.If you require a 50% return on investments with this firm's risk characteristics,what amount will you have to invest today in order to purchase 30% of the firm's common shares?

• A) $240.000 million
• B) $105.350 million
• C) $31.605 million
• D) none of the above

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Definitions:

Accounts Receivable

Debts owed by customers to a business for products or services provided but not yet compensated for.

Accounts Payable

The amount of money that a company owes to its creditors for goods or services that it has received but not yet paid for.

Marginal Tax Rate

The rate at which an additional dollar of income would be taxed, representing the individual's tax bracket.

Depreciation Life

The period over which a fixed asset is expected to depreciate until it reaches its salvage value.