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 million in venture capital financing. Your analysis reveals that there are three possible scenarios- pessimistic, expected, and optimistic-representing different profitability, growth, and valuation expectations. Given the riskiness of this young company, assume that you decide the required rate of return is 24 percent. Given the following information and an expected sale of the firm in 7 years, determine whether your fund should invest in the startup:
$\begin{array} { | l | c | c | c | }
\hline & \text { Pessinistic } & \text { Esggected } & \text { Optinistic } \
\hline \text { Prabability of autcame } & 25 \% & 45 \% & 30 \% \
\hline \text { Revenue in year } 7 ( \mathbf { 4 m i l l i a n s ) } & 8 & 12 & 18 \
\hline \text { Prafit marpgn } & \$ 8 & \$ 20 & \$ 30 \
\hline \text { Pricelearning ratio at sale } & 5.00 \% & 8.00 \% & 10.00 \% \
\hline
\end{array}$ What is the NPV of the investment?

Question

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 million in venture capital financing. Your analysis reveals that there are three possible scenarios- pessimistic, expected, and optimistic-representing different profitability, growth, and valuation expectations. Given the riskiness of this young company, assume that you decide the required rate of return is 24 percent. Given the following information and an expected sale of the firm in 7 years, determine whether your fund should invest in the startup:
 $\begin{array} { | l | c | c | c | } 
\hline & \text { Pessinistic } & \text { Esggected } & \text { Optinistic } \
\hline \text { Prabability of autcame } & 25 \% & 45 \% & 30 \% \
\hline \text { Revenue in year } 7 ( \mathbf { 4 m i l l i a n s ) } & 8 & 12 & 18 \
\hline \text { Prafit marpgn } & \$ 8 & \$ 20 & \$ 30 \
\hline \text { Pricelearning ratio at sale } & 5.00 \% & 8.00 \% & 10.00 \% \
\hline
\end{array}$ What is the NPV of the investment?

Quizplus · Accepted Answer

The Answer of 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 million in venture capital financing. Your analysis reveals that there are three possible scenarios- pessimistic, expected, and optimistic-representing different profitability, growth, and valuation expectations. Given the riskiness of this young company, assume that you decide the required rate of return is 24 percent. Given the following information and an expected sale of the firm in 7 years, determine whether your fund should invest in the startup:
 $\begin{array} { | l | c | c | c | } 
\hline & \text { Pessinistic } & \text { Esggected } & \text { Optinistic } \
\hline \text { Prabability of autcame } & 25 \% & 45 \% & 30 \% \
\hline \text { Revenue in year } 7 ( \mathbf { 4 m i l l i a n s ) } & 8 & 12 & 18 \
\hline \text { Prafit marpgn } & \$ 8 & \$ 20 & \$ 30 \
\hline \text { Pricelearning ratio at sale } & 5.00 \% & 8.00 \% & 10.00 \% \
\hline
\end{array}$ What is the NPV of the investment?

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