Downtown Partners is considering an investment of $500,000 in an early stage company, Newco. Downtown requires a 40% annual rate of return. Newco generated $400,000 in EBITDA last year, and this amount is expected to grow at a rate of 25% per year over the next five years. Companies similar to Newco are being valued at five times EBITDA, and Downtown thinks this is a reasonable multiple for the valuation of the firm in five years. What fraction of Newco does Downtown need to own at the end of five years in order to realize the required return on its investment? 25% 33% 44% 100% None of the abo

Downtown Partners is considering an investment of $500,000 in an early stage company, Newco. Downtown requires a 40% annual rate of return. Newco generated $400,000 in EBITDA last year, and this amount is expected to grow at a rate of 25% per year over the next five years. Companies similar to Newco are being valued at five times EBITDA, and Downtown thinks this is a reasonable multiple for the valuation of the firm in five years. What fraction of Newco does Downtown need to own at the end of five years in order to realize the required return on its investment? 25% 33% 44% 100% None of the abo

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 22P

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