please show calculations and formulas for each component
2. Kingsway Capital Partners, LLC has recently acquired a 40% equity ownership in Barry Down Inc. in exchange for a $5 million investment. Kingsway is interested in estimating an expected compound rate of return on its investment Depending on the success of products currently under development, Kingsway's investment in Barry Down could turn out to be a complete failure (black hole), barely surviving (living dead), or wildly successful (venture utopia). Kingsway 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 BarryDown investment that Kingsway expects to exit at the end of five years. Outcome Yol Y12 Yr3 Yr4 Yrs Black Hole SO Living Dead 0 $10 million Venture Utopia 0 0 0 $50 million Part A A. Calculate the internal rate of return (IRR) for each scenario or outcome for BarryDown. B. Calculate the weighted average of the IRRs for the three scenarios. What is the expected IRR for the Barry Down venture? C. What would be Kingsway's expected IRR if its $5 million investment in BarryDown bought only a 35% interest in the venture? 0 0 0 0 0 0 0 0 D. Show how your answer in Part C would change if Kingsway received a 51% ownership stake in the Barry Down venture for $5 million. Part B Now assume under the venture utopia scenario that, in addition to the $50 million cash inflow in year 5, there will be an annual Simillion preferred dividend (to be paid to Kingsway but not other equity investors). Kingsway expects to receive this $1 million dividend under the venture utopia scenario in each of the five years that the Barry Down investment will be maintained, No preferred annual cash flows are expected under either the black hole or the living dead scenarios, E. Calculate the revised internal rate of return for the venture utopia scenario if Kingsway's equity ownership stake in Barry Down is 40% F. What would be Kingsway's expected IRR on the Barry Down venture? 2. Kingsway Capital Partners, LLC has recently acquired a 40% equity ownership in Barry Down Inc. in exchange for a $5 million investment. Kingsway is interested in estimating an expected compound rate of return on its investment Depending on the success of products currently under development, Kingsway's investment in Barry Down could turn out to be a complete failure (black hole), barely surviving (living dead), or wildly successful (venture utopia). Kingsway 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 BarryDown investment that Kingsway expects to exit at the end of five years. Outcome Yol Y12 Yr3 Yr4 Yrs Black Hole SO Living Dead 0 $10 million Venture Utopia 0 0 0 $50 million Part A A. Calculate the internal rate of return (IRR) for each scenario or outcome for BarryDown. B. Calculate the weighted average of the IRRs for the three scenarios. What is the expected IRR for the Barry Down venture? C. What would be Kingsway's expected IRR if its $5 million investment in BarryDown bought only a 35% interest in the venture? 0 0 0 0 0 0 0 0 D. Show how your answer in Part C would change if Kingsway received a 51% ownership stake in the Barry Down venture for $5 million. Part B Now assume under the venture utopia scenario that, in addition to the $50 million cash inflow in year 5, there will be an annual Simillion preferred dividend (to be paid to Kingsway but not other equity investors). Kingsway expects to receive this $1 million dividend under the venture utopia scenario in each of the five years that the Barry Down investment will be maintained, No preferred annual cash flows are expected under either the black hole or the living dead scenarios, E. Calculate the revised internal rate of return for the venture utopia scenario if Kingsway's equity ownership stake in Barry Down is 40% F. What would be Kingsway's expected IRR on the Barry Down venture
