Question :
It’s Gonna Be Big (IGBB)
It’s Gonna Be Big (IGBB) seeking : 1325802
It’s Gonna Be Big (IGBB)
It’s Gonna Be Big (IGBB) is seeking venture capital investment of $8 million. The founder and the venture capital fund agree the firm is worth $15 million today, and the venture capital investor asserts it requires a 35% (compounded annually) expected return. IGBB and the venture capital investor foresee an IPO in four years, at which time IGBB is expected to be valued at $90 million.
17.What share of IGBB’s equity is necessary for the venture capital investor to achieve its required return?
a.45%
b.40%
c.35%
d.30%
18.If the venture capital investor pushes for a 40% per year expected return, what share of IGBB’s equity will it receive in exchange for its $8 million investment?
a.34%
b.39%
c.30%
d.26%
19.Suppose the venture capital investor’s share of the equity in IGBB is 25%, and that in four years at the IPO the firm is valued at $120 million. What annual (compounded) return did the venture capital investor earn?
a.46%
b.39%
c.30%
d.26%
Pickswinners Venture Fund
Pickswinners Venture Fund invested $10 million five years ago in Robotronics Co. The fund received 6 million shares of convertible preferred stock, each of which can be converted into three shares of common stock. Robotronic is now set to complete an IPO, and its shares are being priced at $40 each. Pickswinners will convert its preferred stock to common at the IPO, and will sell its shares along with Robotronic. The investment banking firm handling the IPO will charge an 8% underwriting fee.
20.If Pickswinners’ common stock position represents 40% of Robotronics equity, how many shares are being offered in the IPO?
a.15,000,000
b.18,000,000
c.25,200,000
d.45,000,000
21.What proceeds does Pickswinners expect to receive?
a.$662,400,000
b.$220,800,000
c.$720,000,000
d.$552,000,000
22.What is the annual (compounded) return on Pickswinners’ investment?
a.13%
b.31%
c.131%
d.231%
23.Palooka Products negotiates a venture capital investment contract, receiving $5 million today, with the expectation that the firm will seek an IPO in five years with an expected value of $50 million. If the venture capital investor requires a 40% expected return, what share of Palooka Products’ equity does it accept in exchange for its $5 million investment?
a.54%
b.38%
c.26%
d.14%
24.China has one of the fastest growing and potentially largest economies in the world, yet there is very little or no private equity investment. Why?
a.There are not enough attractive investment opportunities yet.
b.Basic contracting and property rights issues cannot be legally supported or enforced at this time.
c.Stock market growth provides more than enough funding.
d.None of the above.
25.Which country shows a great potential for future private equity investment?
a.Canada
b.China
c.India
d.Japan
26.The financing provided for equity investments in rapidly growing private companies is called
a.venture capital
b.junk bonds
c.initial public offerings
d.none of the above
