Suppose that Turki decided to enter a joint venture with Dari in a private equity project, where Turki contributes KD 3,000,000 and Dari contributes KD 1,000,000. They also agreed on the following: 

• Each year, Turki receives 10% on his equity from the annual operating cash flows before Dari receives anything 

• If there is enough, Dari receives 5% on his equity from the annual operating cash flows, or only the left over 

• Any remaining CF from the annual operating cash flows is to be split equally between Turki and Dari 

• After 5 years, the private equity project is sold and the proceed is divided such that, if possible, Turki receives sufficient amount to earn 15% IRR while the remaining goes to Dari 

• Assume that after 5 years, the following figures came out: Time 1 2 3 4 5 CF (KDs) 200,000 400,000 600,000 800,000 900,000 Project Sale Proceed (KD) 5,000,000 Who do you think (Turki or Dari) has achieved higher profitability (i.e. IRR)? 

How do you explain the higher return in terms of the risk profile of the higher-return investor?

Answer rating: 100% (QA)

Investors looking for a moderate level of risk but relatively higher returns as compared to fixedincome instruments look for mediumrisk investment opt... View the full answer