Question

You have purchased 1 million shares in a restaurant chain venture. At this zero-stage investment, your company's assets are $100,000 plus the idea for your new product. Suppose that when you first approach your friendly VC, he decides that your shares are worth only $0.40 each.

a. How many shares will you need to sell to raise the additional $1,370,000?

b. What fraction of the firm will you own after the VC investment? (Round your answer to 1 decimal place.)

Answer 1

Answer:

a. 3,425,000 shares

b. 22.60%

Explanation:

The calculations are presented below:

a. The number of shares sold is shown below:

= Additional amount ÷ share worth value

= 1,370,000 ÷ $0.40

= 3,425,000 shares

b. The fraction would be

= Number of shares purchased ÷ Total number of shares after considering the additional amount

= 1,000,000 ÷ 4,425,000

= 22.60%

The total number of shares would be

= 1,000,000 + 3,425,000

= 4,425,000