Question: You work for ABC Ventures and you have been asked to evaluate investing in a startup firm that makes smart road technology to warn cars

You work for ABC Ventures and you have been asked to evaluate investing in a startup firm that makes smart road technology to warn cars of upcoming road hazards. The startup is seeking $5.0 million in venture capital financing. Your analysis reveals that there are three possible scenarios pessimistic, expected, and optimisticrepresenting different profitability, growth, and valuation expectations. Given the riskiness of this young company, assume that you decide the required rate of return is 30 percent. Given the following information and an expected sale of the firm in 5 years, determine whether your fund should invest in the startup:

	Pessimistic	Expected	Optimistic
Probability of outcome	25%	45%	30%
Revenue in year 7 ($millions)	9	12	18
Profit margin	5.00%	8.00%	10.00%
Price/earnings ratio at sale	8	20	30

What is the NPV of the investment? (2.2 points)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

31.25 pts A retail tenant pays percentage rent of 3% over a natural breakpoint based upon a rental rate of $10 per square foot. The tenant leases 4,000 square feet and is estimated to generate...

QUESTION 2 You work for ABC Ventures and you have been asked to evaluate investing in a startup firm that makes smart road technology to wam cars of upcoming road hazards. The startup is seeking $5.0...

What is the NPV of the investment QUESTION 1 You work for ABC Ventures and you have been asked to evaluate hivesting in a startup firm that makes smart road technology to warn cars of upcoming road...

2. You work for Venture Fund and you have been asked to evaluate investing in a startup firm that makes smart road technology to warn cars of upcoming road hazards. The startup is seeking $4.5...

3) You work for Venture's r Us and you have been asked to evaluate investing in a startup firm that makes smart road technology to warn cars of upcoming road hazards. The startup is seeking $4.5...

ANTRON Test Sh startupfi 2. You work for Venture Fund and you have been that makes smart road technology to warn cars of upcoming road ia 34.3 million in venture capital financi scenarios...

firm or Venture Fund and you have been asked to evaluate investing in a startup $4.5 million in venture capital financing. Your analysis reveals ueren profitability scenarios-pessimistic, expected,...

Published by CQ Press, an Imprint of SAGE Publications, Inc. www.cqresearcher.com Future of Cars Are Americans ready for self-driving vehicles? C ars that drive themselves, long a staple of science...

Read the case scenario and use the text provided to support your answer and only used the text provided Case Scenario Dion is an engineer with Tesla Motors who helps to design electric motors. It has...

1. Analyze the financial and operational risks of Tesla and compare with its peers. 2. Carry out year on year change analysis and try to forecast Net Income to Q2 2021. I leave this to you to either...

convertible debentures. Each convertible bond has a face value of $1,000. Each convertible bond can be converted into 21 shares of common stock anytime before maturity. The stock price is $37.65 and...

Events A and B are pictured in the Venn diagram at right. a. Are the two events mutually exclusive? Explain. b. Are the two events independent? Assume P(A) and P(B) . Explain.

Question 1 2 Which of the following would least likely be included in the liquidity constraint for an individual investor with $ 2 million in investable assets? Select one $ 1 5 . 0 0 0 annually for...

On 1 March 2007 DB Limited issued R560 000 15% debentures at R98. The debentures were to be redeemed at par in four equal annual payments starting 28 February 2010. Required: Journalise the above...