A venture is expected to have an exit value of $10,000,000 five years from now. If venture investors invest $1,000,000 now, and expect a 20% compounded rate of return on their investment, what portion of the exit value would they need?

Question

Quizplus · Accepted Answer

The future value of the investment after five years is calculated as follows:
FV = $1,000,000 x (1+20%)^5 = $3,204,800

Therefore, the portion of the exit value that the investors need to receive is:
$1,000,000 + $3,204,800 = $4,204,800

To calculate the percentage of the exit value needed, we divide the required amount by the exit value:
$4,204,800/$10,000,000 = 0.42048

So, the investors need 42.048% of the exit value. Rounded to the nearest tenth, this is 24.9%. Therefore, the best choice is C.

A Venture Is Expected to Have an Exit Value of $10,000,000