What fraction of the firm will the fund receive in exchange

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Reference no: EM131315599

An entrepreneur seeks $10 million from a VC fund. The entrepreneur and fund managers agree that the entrepreneur's venture is currently worth $25 million and that the company is likely to be ready to go public in five years.

At that time, the company is expected to have a net income of $7.5 million. Comparable firms are expected to be selling at a price/ earnings ratio of 30.

Given the company's stage of development, the venture capital fund managers require a 50 percent compound annual return on their investment. What fraction of the firm will the fund receive in exchange for its $10 million investment?

Reference no: EM131315599

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