A Chinese venture capital fund owns 30% of a Chinese food delivery company. A similar Malaysian competitor offered to buy the entire company, including the 30% interest, for US $200 million, so the 30% is worth $60 million today

 

The venture fund managers believe that the company will grow quickly, and its value might grow at 25% rate in five years. For this growth to be achieved, the company must sell additional stock to finance the business, and the fund's ownership will fall to 20% (from 30% today) in five years.

 

The managers' prediction is based on the company achieving sales and profit goals and the hi-tech stock market remaining high. Because none of these factors is certain, the fund managers believe a 22% discount rate is appropriate for future cash flows, if they decide to keep the company for five years.

 

Should the fund sell the company today, or keep the investment for five years?