Marvel+ has recently been granted a license by ICASA to operate in South Africa. Given the nature of the industry, zero savage value is considered. The process of applying for the broadcasting license has already been costly; however in order to proceed, it will be necessary to invest a further R20 million for the purpose of upgrading systems. Marvel+ does not have sufficient capital to fund this investment and is seeking an outside investor to supply the needed R20 million. If the needed upgrades begin immediately, they will be worth R11 million in present value terms. 

You believe that the satellite television market in South Africa is likely to be extremely volatile and so Marvel+'s CFO has modelled that the distribution of returns has an annual standard deviation of 35%. Given the significant costs required to obtain such a license, Marvel+ expect to operate without any serious competition for the next 8 years. The risk free rate is 7% per annum.

 

What is the minimum amount Marvel+ should be willing to accept on this deal?

Answer rating: 100% (QA)

Based on the given scenario this answer aims to determine whether or not it would be financially viable for an outside investor to invest R20 million in marvel for the purpose of upgrading their syste... View the full answer