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Question - Suppose that Add Venture Partners (AVP) is considering a £10m Series A investment in Beta. AVP proposes to structure the investment as 10 million shares of convertible preferred stock (CP) with 2.5x liquidation preference on the CP. The employees of Beta have claims on 5 million common shares. Following the Series A investment, Beta will have 5 million common shares outstanding and would have 15 million shares outstanding on conversion of the CP. AVP expects a Series A return of 3x in 3 years. AVP cost of venture capital is estimated to be 15%. Consider the following:
i. Write the equation for the partial valuation of Series A.
ii. Draw the exit diagram for the Series A.
iii. What is the implied total exit valuation of Beta in three years?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
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