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Equity stake the venture capitalist

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Advanced Computer Works Corporation (ACW) has approached a venture capitalist for $15 million in new funding to support the firm's rapid growth. The risk of ACW is such that the venture capitalist is entitled to 30% compound annual (expected) return. Both parties agree that ACW should plan to execute an IPO in three years at which time the firm is expected to have net profits of $7 million and to sell at a price / earnings ratio of 10. What would be the percent equity stake the venture capitalist will receive in exchange for its $15 million investment?

A. 28.64%

B. 53.88%

C. 47.08%

D. 39.27%

E. 61.57%

Reference no: EM131105005

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