A venture capital firm wants to invest $5 million in Artichoke Corp. ,a startup biotech firm.Artichoke is expected to go public in 4 years.Earnings will be negligible until year 4,but are projected to be $4 million in year 4.Comparable biotech firms are trading at P/E ratios of 18 on average.Artichoke has 3 million shares of stock outstanding.The VC firm will apply a discount rate of 40% to the investment.How many shares of stock should the VC firm be given for its $5 million investment?

Question

Quizplus · Accepted Answer

The Answer of A venture capital firm wants to invest $5 million in Artichoke Corp. ,a startup biotech firm.Artichoke is expected to go public in 4 years.Earnings will be negligible until year 4,but are projected to be $4 million in year 4.Comparable biotech firms are trading at P/E ratios of 18 on average.Artichoke has 3 million shares of stock outstanding.The VC firm will apply a discount rate of 40% to the investment.How many shares of stock should the VC firm be given for its $5 million investment?

A Venture Capital Firm Wants to Invest $5 Million in Artichoke