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Question 5 Wakalinga Company is developing new patent for product. A venture capital firm gives the company $25,000,000 initially and $55,000,000 more at the end
Question 5 Wakalinga Company is developing new patent for product. A venture capital firm gives the company $25,000,000 initially and $55,000,000 more at the end of the first year. The product patent will be sold at the end of year 5 to the highest bidder and Wakalinga Company will receive $80,000,000. The venture capital firm will receive everything in excess of $80,000,000. The firm invest unused money (positive cash flows) in short term commercial paper earning 10% effective rate per year through its bank. In the meantime, Wakalinga Company incurs development expenses of $50,000,000 for the first three years. The product is to be evaluated by Tanzania Revenue Authority and there will be neither expenses nor revenues during the fourth year. What is Wakalinga Company's rate of return on this investment
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