Question
The research centre is not only attending to their research as another obligation is to carefully take care of its capital. This duty falls upon
The research centre is not only attending to their research as another obligation is to carefully take care of its capital. This duty falls upon Jennie Nielsen together with the chairman, Erik Lundqvist. Erik had got an idea from a friend that he thought looked very promising. It was about an investment in a new fish farm just outside the coast. The situation is as follows. The investment was 45 million and that is a lot of money even for such well funded institution like this. However what made Erik exited was that the expected cash flow. There was a 65% probability of 27 million cash flow at the end of year one and 35% to get 15 million. If the 27 million was received then the following year had a probability of 60% to deliver 55 million and 40% to deliver 35 million. However if the 15 million was received in the end of year one then there was a chance to receive 25 million at 25% probability and a 75% probability to get 40 million. Erik's view was that this must be a done deal but Jennie calmed him down. Jennie said that firstly we need to look at the base required return of 8% and considering the additional risk at 7% had to be added. On top of that the statues required a return on investment of 20% using discounted values. Is this a viable option? Help Jennie and Erik with a full assessment of this situation and propose what to do.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
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