What is her cash-on-cash return

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a. Jones, the investor, proposes taking participating preferred stock' with 1x liquidation preference in return for her $5 million investment. Draw the payoff diagram for this security from Jones perspective, assuming she invests $5 million at a pre-money valuation of $14.75 million with no option pool.

b. What is her cash-on-cash return (money received divided by investment) if New Venture exits in December 2020 at a $150 million valuation?

c. Thompson, the founder, provides a counter-proposal in which the security will be a standard convertible preferred stock with a liquidation of 2X. Draw the payoff diagram for this security from Jones' perspective.

d. If NewVenture exits in December 2020 at a $ 150 million valuation what would be Jones payoff? which type of a security would Jones prefer? Why?

e. At what company valuation would the two securities have an equal payout?

Reference no: EM133113669

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