Consider the information in Table 3 about an investment opportunity that a private equity fund is...

  

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Consider the information in Table 3 about an investment opportunity that a private equity fund is considering. This investment opportunity can be deferred for one year. Table 3 Expected cash flow (CF) year 1 g-perpetuity growth rate of CF k- cost of capital K- investment cost o standard deviation of CF r-risk free rate ō - opportunity cost €12 million 1% 8% €140 million 18% 2% 6% a) What is the "static" Net Present Value of this investment opportunity? Explain your answer and present the result rounded to one decimal place (example 1.75 to 1.8). [5 marks] b) What is the value of this investment opportunity using the Dixit and Pindyck (D&P) model? Explain your answer (use the input B = 3.79 in the D&P model). Present your result rounded to one decimal place. [15 marks] c) Should this investment opportunity be accepted by the private equity fund? Explain your answer. [5 marks] Consider the information in Table 3 about an investment opportunity that a private equity fund is considering. This investment opportunity can be deferred for one year. Table 3 Expected cash flow (CF) year 1 g-perpetuity growth rate of CF k- cost of capital K- investment cost o standard deviation of CF r-risk free rate ō - opportunity cost €12 million 1% 8% €140 million 18% 2% 6% a) What is the "static" Net Present Value of this investment opportunity? Explain your answer and present the result rounded to one decimal place (example 1.75 to 1.8). [5 marks] b) What is the value of this investment opportunity using the Dixit and Pindyck (D&P) model? Explain your answer (use the input B = 3.79 in the D&P model). Present your result rounded to one decimal place. [15 marks] c) Should this investment opportunity be accepted by the private equity fund? Explain your answer. [5 marks]

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Calculating the Static Net Present Value NPV The static NPV for this investment opportunity consider... View the full answer