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Consider a start-up requiring $4,000 initial funding Furthermore, assume that a VC estimates the firm...

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Accounting

Consider a start-up requiring $4,000 initial funding Furthermore, assume that a VC estimates the firm would yield the following cash flows with probability p = 0.8 and 1 - p = 0.2, respectively.

Year 0 1 2 3 4
Cash flow -4,000
p = 0.8 480 480 480 4,000
1 - p = 0.2 480 480 480 100,000
Expected cash flow -4,000

What percentage of equity would the VC demand in a simple common stock capitalization in order to attain an expected IRR = 35%?

Group of answer choices

83 percent

75 percent

46 percent

67 percent

51 percent

Answer & Explanation Solved by verified expert
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