Laurentian Capital Partners, LLC has recently acquired a 40% equity ownership in Bumble Inc. in exchange for a $5 million investment. Laurentian is interested in estimating an expected compound rate of return on its investment. Depending on the success of products currently under development, Laurentians investment in Bumble could turn out to be a complete failure (black hole), barely surviving (living dead), or wildly successful (venture utopia). Laurentian has assigned probabilities of .20, .50, and .30, respectively, to the three possible outcomes. Following are the 3 cash flow scenarios or outcomes for the Bumble investment that Laurentian expects to exit at the end of five years.

Outcome Yr1 Yr2 Yr3 Yr4 Yr5

Black Hole 0 0 0 0 $0

Living Dead 0 0 0 0 $10 million

Venture Utopia 0 0 0 0 $50 million

Part A

1. Calculate the internal rate of return (IRR) for each scenario or outcome for Bumble.

2. Calculate the weighted average of the IRRs for the three scenarios. What is the expected IRR for the Bumble venture?

3. What would be Laurentian expected IRR if its $5 million investment in Bumble bought only a 35% interest in the venture?

4. Show how your answer in Part C would change if Laurentian received a 51% ownership stake in the Bumble venture for $5 million.

*SHOW WORK IN EXCEL PLEASE**