Explore BrainMass

Explore BrainMass

    Rate of return and the fraction of the company

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Suppose that 5 out of 10 investments made by a venture capital (VC) fund result in total
    loss, meaning that the return on each of them is -100%. And of the 10 investments, 3
    break even, earning a 0% return. Assume that the fund managers require a 40%
    compound annual return on their investment and the risk-free rate is 6%.

    a) What rate of return must the fund earn on the 2 most successful deals to achieve a
    portfolio return equal to expectations?
    b) Assume that an entrepreneur is seeking â?¬10 million from this fund which thinks
    that the company is likely to be ready to go public in five years. At that time, the
    company is expected to have a value of â?¬450 million. What fraction of the
    company will the fund request in exchange for its investment? Assume that there
    will be no need for additional equity financing before the IPO.

    © BrainMass Inc. brainmass.com June 4, 2020, 12:32 am ad1c9bdddf
    https://brainmass.com/business/initial-public-offering/rate-return-fraction-company-344344

    Solution Preview

    See the attached file.

    Suppose that 5 out of 10 investments made by a venture capital (VC) fund result in total loss, meaning that the return on each of them is -100%. And of the 10 investments, 3 break even, earning a 0% return. Assume that the fund managers require a 40% compound annual return on their investment and the risk-free rate is 6%.

    a) What rate of ...

    Solution Summary

    This post shows how to calculate rate of return and the fraction of the company

    $2.19

    ADVERTISEMENT