Consider a start-up requiring $4.000 initial funding Furthermore, assume that a VC estimates the firm would yield the following cash flows with probability p = 0.8 and 1- p = 0.2, respectively. 3 Year Cash flow P=0.8 1-p=0.2 Expected cash flow 75 percent 67 percent O 51 percent O46 percent O83 percent 0 M -4,000 -4.000 1 480 480 What percentage of equity would the VC demand in a simple common stock capitalization in order to attain an expected IRR 35%? 2 480 480 480 480 4,000 100,000
Consider a start-up requiring $4.000 initial funding Furthermore, assume that a VC estimates the firm would yield the following cash flows with probability p = 0.8 and 1- p = 0.2, respectively. 3 Year Cash flow P=0.8 1-p=0.2 Expected cash flow 75 percent 67 percent O 51 percent O46 percent O83 percent 0 M -4,000 -4.000 1 480 480 What percentage of equity would the VC demand in a simple common stock capitalization in order to attain an expected IRR 35%? 2 480 480 480 480 4,000 100,000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Consider a start-up requiring $4.000 initial funding Furthermore, assume that a VC estimates the
firm would yield the following cash flows with probability p = 0.8 and 1- p = 0.2, respectively.
Year
Cash flow
P=0.8
1-p=0.2
Expected cash flow
75 percent
67 percent
O 51 percent
46 percent
0
-4,000
O 83 percent
-4,000
1
480
480
2
What percentage of equity would the VC demand in a simple common stock capitalization in order
to attain an expected IRR 35%?
480
480
3
480
480
4,000
100,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3a3b8832-7a74-4bfd-8801-c4e3bb66aeab%2F1deae1b7-6996-462b-9d02-6eea02bf0a2f%2F7fu294_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider a start-up requiring $4.000 initial funding Furthermore, assume that a VC estimates the
firm would yield the following cash flows with probability p = 0.8 and 1- p = 0.2, respectively.
Year
Cash flow
P=0.8
1-p=0.2
Expected cash flow
75 percent
67 percent
O 51 percent
46 percent
0
-4,000
O 83 percent
-4,000
1
480
480
2
What percentage of equity would the VC demand in a simple common stock capitalization in order
to attain an expected IRR 35%?
480
480
3
480
480
4,000
100,000
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