VenCap, Inc is a venture capital financier It estimates that investing pound 4 5 million in a particular venture capital project can return pound 60 million at the end of six years if it succeeds however, it realizes that the project may fail at any time between now and the end of six yeai s The fo...

The probability that the venture capital project survives to the end of the first year is 1 028 1 ...

VenCap, Inc. is a venture capital financier. It estimates that investing £4.5 million in a particular venture

Question:

VenCap, Inc. is a venture capital financier. It estimates that investing £4.5 million in a particular venture capital project can return £60 million at the end of six years if it succeeds; however, it realizes that the project may fail at any time between now and the end of six yeai s. The following table has VenCap's estimates of probabilities or failure for the project. First, 0.28 is the probability of failure in year 1. The probability that the project fails in the second year, given that it has survived through year 1, is 0.25. The probability that the project fails in the third year, given that it has survived through year 2, is 0.22, and so forth. VenCap is considering an equity investment in the project, and its for a project with this level of risk is 22 percent.

Compute the expected net present value of the venture capital project and recommend whether VenCap should accept or reject the project.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...