A VC invests $4M into a firm in which the entrepreneur has 5M shares of common The VC receives in exchange 6M shares of CP at $0 5 per share Assume that rf 5 , that the exit time is 3 years and that the volatility of the investment is 60 Find the implied firm value offered by the VC Would the implied firm value be larger if The exit time is longer (say 4 years) The volatility of the investment is higher (say 75 ) Explain why

Question: A VC invests $4M into a firm in which the entrepreneur has 5M shares of common. The VC receives in exchange 6M shares of CP

A VC invests $4M into a firm in which the entrepreneur has 5M shares of common. The VC receives in exchange 6M shares of CP at $0.5 per share. Assume that rf=5%, that the exit time is 3 years and that the volatility of the investment is σ=60%.

Find the implied firm value offered by the VC.
Would the implied firm value be larger if:
1. The exit time is longer (say 4 years)
2. The volatility of the investment is higher (say 75%)? Explain why.

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