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Negotiating funding from a venture capital fund

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New Venture Corporation (NVC) is negotiating funding from a venture capital fund. After some intense negotiations the parties agree with NVC on funding of $7 million for a 45% annual expected return. They agree that NVC will execute an IPO in 3 years at which time the firm is expected to have net profits of $7 million and to sell at a P/E ratio of 20, which would put the company's value at $140 million. What portion of NVC's equity will the venture capital fund receive in exchange for its $7 million investment? (You may want to save your calculation for another related question.)

A. 26.33%

B. 21.36%

C. 13.29%

D. 15.24%

E. 18.64%

Reference no: EM131105037

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