Chapter 15, Problem 1QP

a.

Summary Introduction

To calculate: The number of shares to be sold to raise $500,000.

Explanation of Solution

$\begin{array}{c}\text{Company's needed capital = \$500,000}\\ \text{Price per share }=\text{ \$0}\text{.40}\\ \text{No of shares to be sold }=\left(500000/0.40\right)\\ =\$12,50,000.\end{array}$

b.

Summary Introduction

To calculate: The fraction of the firm owned by the person after venture capital investment.

Explanation of Solution

$\begin{array}{c}\text{The number of shares owned by the person = 10,00,000}\\ \text{The number of shares owned by the venture capital = 12,50,000}\\ \text{The share of the person's ownership in the company = }\left(\frac{1000000}{\left(1000000+1250000\right)}\right)\\ =44.4\%\end{array}$