CP Venture Partners is looking at the possible investment

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CP Venture Partners is looking at the possible investment of $ 1 million in an early-stage
company (Startco). Given the stage of the investment, CP requires a 40% annual rate of return.
The company earned $ 750,000 in EBITDA last year, and this amount is expected to grow at a
rate of 30% per year over the next five years. Companies like Startco are currently being valued
at five times EBITDA, and CP Venture Partners thinks this is a reasonable multiple for the
valuation of the firm in five years. a. Assuming that Startco currently has no debt and does not
plan to borrow over the next five years, what do you estimate the enterprise value of the
company will be at the end of five years? b. What fraction of Startco does CP Venture Partners
need to own at the end of five years in order to realize the required rate of return on its
investment?View Solution:
CP Venture Partners is looking at the possible investment of

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