Use the following information to estimate the VentureBanc investors target rate of return: RATE COMPONENT RETURN COMPONENT

Question:

Use the following information to estimate the VentureBanc investors’ target rate of return:
RATE COMPONENT RETURN
COMPONENT
Liquidity premium ............ 5%
Risk-free rate .............. 6%
Advisory premium ............. 9%
Market risk premium ......... 7.5%
Hubris projection premium ......... 15%

A. VentureBanc uses a systematic risk measure of 2.0. Based on the information shown, estimate VentureBanc’s investment risk premium. Then estimate the capital for VentureBanc.
B. Determine the rate components and their returns that a venture investor like VentureBanc would require to be covered beyond a traditional cost-of-equity estimate.
C. What overall venture investment would be used by VentureBanc?

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