A venture capitalist, Ms. Money, is considering investing in a new company, ANTB, that performs drug research.ANTB believes that it can find a new antibiotic drug.ANTB is seeking a 1 time investment of $1,000,000 from 20 different people.As Ms. Money’s financial consultant she asked you to perform an analysis of the problem and to provide your recommendation.
She expects an executive summary that consists of a page of bulleted items that will allow her to easily obtain the necessary information. Then she expects a standard technical report to explain the rationale behind your findings.
She has given you the following information:
The company has a 30% chance of going bankrupt in 3 years (no payoff).
The company has a 10% chance of “breaking even” in 3 years (pay out 1 mil in 3 years).
The company has a 40% chance of going being moderately successful (paying out 3 mil in 4 years).
The company has a 20% chance of being highly successful (paying out $2 mil at the end of years 2, 3, 4 and 5).For this scenario and tax purposes, assume that the company is buying out 25% of Ms. Money’s stock with each 2 million dollars returned).
Ms. Money has stated that she expects a MARR of 15% ATCF on such projects.Her taxes are estimated to be 30% and she makes enough money that she can take full tax benefit of any loss.Through your conversations you have also ascertained that she has a piece wise linear utility function with a cap of $5 million and a lower value of –2 million. You know that it is equivalent for her to either take $0 or flip a fair coin.If she wins, she obtains 5 million, but if not, she loses 2 million.
For $50,000 she can hire a team to perform a small survey.The team will return either a good (G) or a bad (B) depending upon the survey.The survey company estimates that P(G|Highly successful) = .9, P(B| Highly successful) = .1,
P(G|Moderately successful) = .6, P(B| Moderate successful) = .4
P(G|Breakeven) = .4, P(B| Breakeven) = .6
P(G|Bankrupt) = .2, P(B|Bankrupt)=.8.
Ms. Money has asked you to perform all necessary tasks, including but not limited to expected present worth, utility of her expected present worth, the expected utility of the present worth, expected value of/with perfect information, expected value of sample information, sensitivity analysis, etc.She has also commented that she enjoys seeing the minimize regret analysis and some simulated numbers.
Last Updated on February 11, 2019 by EssayPro