You are a venture capitalist and have been approached by Cirrus Electronics, a private firm. The firm has no debt outstanding and does not have earnings now but is expected to be earning $15 million in four years, when you also expect it to go public. The average price-earnings ratio of other firms in this business is 50.
a. Estimate the exit value of Cirrus Electronics.
b. If your target rate of return is 35%, estimate the value of Cirrus Electronics.
c. Ifyouarecontributing$75millionofventurecapital to Cirrus Electronics, at a minimum what percentage of the firm value would you demand in return?

  • CreatedApril 15, 2015
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