Harkel, CEO of Bestafer, Inc. seeks to raise $6.6 million in a private placement of equity in his early stage venture. Harkel conservatively projects net income of $5 million in year five and knows that comparable companies trade at a price earnings ratio of 20X. Benedicta Jones of Gorsam Capital likes Harkel's plan, but thinks it is naïve in one respect: to recruit a senior management team, she believes Harkel will have to grant generous stock options in addition to the salaries projected in his business plan. From past experience, she thinks management should have the ability to own at least 15% share of the company by the end of year. 

Given her beliefs, what share of the company should Benedicta insist on today if her required rate of return is 50?

Answer rating: 100% (QA)

To determine the percentage of shares that Benedicta should request we first need to project the fut... View the full answer