4. An entrepreneur who would like to open a retail facility similar to the one discussed in the chapter has approached you. By coincidence, it is the same entrepreneur whose decisions we have been studying. The entrepreneur is offering 0% of the equity of the venture for each $10,000 you invest and will contribute $400,000 to the project. Suppose you agree with the entrepreneurs assumptions, as set out in Figure 6.6 for the large facility and elsewhere in the chapter for the small facility, including the PV assumptions. Use simulation to examine the opportunity from your perspective instead of the entrepreneurs.

• 1. What is the NPV of your investment in the large facility if there are no options and investment is immediate?
  2. What is the NPV of your investment in the small facility if there are no options and investment is immediate?

= Variable PV Unit PV Unit Market Size Estimate (after first year) Market Size Market Share Estimate (after first year) Market Share Capacity PV Fixed Costs Total Investment Entrepreneur Investment Percent Equity Per Dollar Invested Assumption Normal Distribution (u = $ 10, o = $1) Normal Distribution (u = $5, o = $0.6) Triangular Distribution (6, 2.6, 1 million units) Normal Dist. (u = estimate, o = 100,000) Normal Distribution (u = 10%, o = 1%) Normal Distribution (u = estimate, o = 0.3%) 500,000 units Normal Dist. (u = $500,000, o = $50,000) Normal Dist. (u = $750,000, o = $25,000) $400,000 1% per $10,000 of outside investment = Variable PV Unit PV Unit Market Size Estimate (after first year) Market Size Market Share Estimate (after first year) Market Share Capacity PV Fixed Costs Total Investment Entrepreneur Investment Percent Equity Per Dollar Invested Assumption Normal Distribution (u = $ 10, o = $1) Normal Distribution (u = $5, o = $0.6) Triangular Distribution (6, 2.6, 1 million units) Normal Dist. (u = estimate, o = 100,000) Normal Distribution (u = 10%, o = 1%) Normal Distribution (u = estimate, o = 0.3%) 500,000 units Normal Dist. (u = $500,000, o = $50,000) Normal Dist. (u = $750,000, o = $25,000) $400,000 1% per $10,000 of outside investment