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The venture capital fund Techno Fund II made a $4 million investment in Optical
Fibers Corporation five years ago and in return received 1 million shares representing 20 percent of Optical Fibers’ equity. Optical Fibers is now planning an initial public offering in which it will sell 1 million newly created shares for $50 per share. Techno has chosen to exercise its demand registration rights and will sell its shares—alongside the newly created shares—in Optical Fibers’ IPO. The investment banks underwriting Optical Fibers’ IPO will charge a 7 percent underwriting spread, so both the firm and Techno Fund II will receive 93 percent of the $50 per-share offer price. Assuming the IPO is successful; calculate the compound annual return that Techno will have earned on its investment?

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