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 $500,000?

Answer 1

we need to sale 1,250,000 shares to our firiend.

Step-by-step explanation:

we need to raise 500,000 dollars.

Each share will provide 0.4 of a dollar (40 cents)

we divide the additional capital we need to raise by the amount each provide to know how many shares do we need to sale to our friend

500,000 / 0.4 = 1,250,000

At the proposed value we need to sale 1,250,000 shares. As we only have 1,000,000 is imposible to raise this amount of cash. We need to negociate a higher price per share.