Question

If your firms share price rises from $12 to $15/share after the VC investment, and your firm pays a dividend of $1 per share, what was the rate of return to the VC?

A) 26.67%        B) -13.33%       C) 33.33%        D) 16.67%

Your firm decides to issue two classes of common stock upon receiving VC funding.   Class A has 5 million shares with 10 votes per share. Class B has 5 million shares with 1 vote per share. If your agreement sets the dividends per share as equal for both class A and B stock, then Class A shareholders have ____________ of the votes and _________ of the dividends.   

A) 90.91%; 90.91%       B) 90.91%; 50.00%       C) 50.00%; 50.00%       D) 83.33%; 33.33%

Answer 1

Question a

Option c

Return to VC=sale price-purchase price+dividend=15-12+1=$4/share

rate of return=return/purchase price*100=4/12*100=33.33%

Question 2

Option B

Total number of shares=5 million+5 million=10 million

votes for class A=number of class A shares* vote/share=5 million*10=50 million

votes for class B=number of class B shares* vote/share=5 million*1=5 million

Hence class A shareholders have votes for class A/(votes for class A+votes for class B) %

=50/55*100=90.91%

Dividend is equal for both classes and equal number of shares are in both classes hence class A will have 50% of dividend.