Expected terminal share price for the company

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A first-round venture capitalist is contemplating a $30 million investment in a company that expects to require an additional $20 million in year two and also an additional $10 million in year four. The company is expected to earn $25 million in year five and should be comparable to companies commanding price/earnings ratios (PERs) of about 20. The venture capitalist expects to harvest his investment at that point through the sale of his stock to an acquiring company. Assume further that the first-round venture capitalist requires a 60% projected internal rate of return (IRR) on a project of this risk. And investors in this company will demand a 40% return in year two and a 15% return in year four. Assume there are 1 million shares outstanding before the investment from venture capitalists. Calculate the share price for each of the rounds and the expected terminal share price for the company.

Reference no: EM132680028

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