If venture investors invest $1,000,000 now, will receive 50% of the exit value, and expect a 20% compounded rate of return on their investment, what will be the amount of the exit value at the end of two years?

Question

Quizplus · Accepted Answer

To calculate the exit value, we first need to calculate the total amount of return that the venture investors are expecting. We know they are expecting a 20% compounded rate of return on their $1,000,000 investment over two years, so we can use the formula:

Future Value = Present Value x (1 + Rate of Return)^Time

Future Value = $1,000,000 x (1 + 0.20)^2
Future Value = $1,000,000 x 1.44
Future Value = $1,440,000

This is the total amount that the venture investors will receive at the end of two years. Now we need to calculate what percentage of that amount the investors will receive based on their agreement to receive 50% of the exit value.

Exit Value = Total Amount x Percentage of Investment

Exit Value = $1,440,000 x 0.50
Exit Value = $720,000

So the exit value at the end of two years will be $2,880,000 (50% of the total amount of $1,440,000). Therefore, the correct answer is C.

If Venture Investors Invest $1,000,000 Now, Will Receive 50% of the Exit