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PetlQ, a pet service venture, is seeking the first-round financing. NaVenture, a professional venture capital firm, is considering to invest $8 million in PetIQ. NaVenture needs to decide to ask for how much percent equity ownership in Petla in exchange for this $8 million investment. NaVenture has a target annual rate of return of 30% on ventures at the similar stage of life cycle as PetIQ is currently in. The following table listing the 3 cash flow scenarios for PetlQ when NaVenture expected to exit at the end of 4 years. Amount invested $8,000,000 Required return 30% 1 2 3 ON 4 0 0 0 0 0.55 0 0 Outcome Probability Yearo Black Hole 0.25 Living Dead 0 $15,000,000 Venture Utopia 0.3 0 0 $80,000,000 In order to minimize its investment risk, NaVenture requires an annual $2 million preferred dividend under the utopia scenario (including the exit year) in addition to the $80 million cash inflow in Year 4 (the exit year). No preferred annual cash flows are expected under either the black hole or the living dead scenarios nor are paid to other NaVenture investors. Required: Calculate the required percentage of final ownership of PetlQ that NaVenture would need to earn a 30% annual rate of return on its investment for 4 years. PetlQ, a pet service venture, is seeking the first-round financing. NaVenture, a professional venture capital firm, is considering to invest $8 million in PetIQ. NaVenture needs to decide to ask for how much percent equity ownership in Petla in exchange for this $8 million investment. NaVenture has a target annual rate of return of 30% on ventures at the similar stage of life cycle as PetIQ is currently in. The following table listing the 3 cash flow scenarios for PetlQ when NaVenture expected to exit at the end of 4 years. Amount invested $8,000,000 Required return 30% 1 2 3 ON 4 0 0 0 0 0.55 0 0 Outcome Probability Yearo Black Hole 0.25 Living Dead 0 $15,000,000 Venture Utopia 0.3 0 0 $80,000,000 In order to minimize its investment risk, NaVenture requires an annual $2 million preferred dividend under the utopia scenario (including the exit year) in addition to the $80 million cash inflow in Year 4 (the exit year). No preferred annual cash flows are expected under either the black hole or the living dead scenarios nor are paid to other NaVenture investors. Required: Calculate the required percentage of final ownership of PetlQ that NaVenture would need to earn a 30% annual rate of return on its investment for 4 years

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