Question

You have purchased 1 million shares in a restaurant chain venture. At this zero-stage investment, your company’s assets are $140,000 plus the idea for your new product.

Suppose that when you first approach your friendly VC, he decides that your shares are worth only $0.60 each.

a. How many shares will you need to sell to raise the additional $774,000? (Enter your answer in whole numbers, not in millions.)

b. What fraction of the firm will you own after the VC investment? (Enter your answer as a percent rounded to 1 decimal place.)

Answer 1

a.
The number of shares you need to sell= additional investment required÷price per share
=774,000÷0.6
=1,290,000

b. The fraction of the form you will own = number of shares purchased by you÷(number of shares purchased by you+number of shares issued to raise additional investment)

=1000000/(1000000+1290000)
=43.7%