Question
Ginny is endowed with $ 8million and is deciding whether to invest in a restaurant. Assume perfect capital markets with an interest rate of 6%.
Ginny is endowed with $ 8million and is deciding whether to invest in a restaurant. Assume perfect capital markets with an interest rate of 6%.
Investment Option | Investment (millions) | End of Year 1 CFs (millions) | End of Year 2 CFs (millions) |
1 | 2 | 1.8 | 1.8 |
2 | 3 | 4.3 | 1.0 |
3 | 4 | 5.4 | 1.4 |
4 | 5 | 5.2 | 1.6 |
- List 4 perfect capital market assumptions.
1. ______________________________ 2. ______________________________
3. ______________________________ 4. _______________________________
- Which investment option should Ginny choose?
- Which investment option can be eliminated from consideration? Why?
Ginny is actively pursuing another business venture as a ticket scalper. She estimates that for a $2 million investment in inventory she can resell her tickets for $6 million over the next two years (cash flows realized in exactly two years). Assume the same 6% interest rate.
- What is the NPV of the Ticket Brokering venture?
- What is the new value of Ginny’s Corporation?
- Suppose Ginny does not have the $2 million to start the new venture. Instead, she wants to raise equity capital by issuing 100,000 shares. What price will new investors be willing to pay?
Step by Step Solution
3.54 Rating (164 Votes )
There are 3 Steps involved in it
Step: 1
Part II i NPV of ticket brokering ...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started