A potential investor is seeking to invest $500,000 in a venture, which currently has 1,000,000 million shares held by its founders, and is targeting a 50% return five years from now. The venture is expected to produce half a million dollars in income per year at year 5. It is known that a similar venture recently produced $1,000,000 in income and sold shares to the public for $10,000,000.

A potential investor is seeking to invest $500,000 in a venture, which currently has 1,000,000 million shares held by its founders, and is targeting a 50% return five years from now. The venture is expected to produce half a million dollars in income per year at year 5. It is known that a similar venture recently produced $1,000,000 in income and sold shares to the public for $10,000,000.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

A potential investor is seeking to invest $500,000 in a venture, which currently has 1,000,000
million shares held by its founders, and is targeting a 50% return five years from now. The
venture is expected to produce half a million dollars in income per year at year 5. It is known
that a similar venture recently produced $1,000,000 in income and sold shares to the public for
$10,000,000.
9. What is the pre-money valuation?
a. $120,300
b. $316,800
c. $158,400
d. $193,900

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