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honeycfa

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发表于 2010-4-27 13:23 | 只看该作者

Reading 73: Alternative Investments Losh习题精选

investor, investing, following, net, 2010
LOS h: Calculate the net present value (NPV) of a venture capital project, given the project's possible payoff and conditional failure probabilities.

An investor is considering investing in a venture capital project that will have a large payoff at exit, which is estimated to occur in four years. The investor realizes that the risk of failure is high, given the following estimated probabilities:

Year     1     2     3     4 
Failure Probability     0.30     0.28     0.28     0.25

The probability that the project will survive to the end of the fourth year is:

A)
 27.22%.
B)
 25.00%.
C)
 27.75%.


The probability is calculated as: (1 ? 0.30) × (1 ? 0.28) × (1 ? 0.28) × (1 ? 0.25) = 0.2722 or 27.22%

 
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honeycfa

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2#
发表于 2010-4-27 13:23 | 只看该作者

Which of the following statements regarding venture capital theory is TRUE?

A)
 The probability of failure for a venture capital project will diminish over time.
B)
 A venture capital project’s expected NPV is a probability-weighted average of the two possible outcomes: success and failure.
C)
 The net present value of a venture capital project that fails is zero.


The net present value of a venture capital project that fails is almost certainly less than zero. The probability of failure may or may not diminish over time, depending on the project. The expected NPV is a probability-weighted average of the two possible outcomes: success or failure.

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honeycfa

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3#
发表于 2010-4-27 13:23 | 只看该作者

A portfolio manager is analyzing a $2,000,000 venture capital investment. If the project succeeds until the end of the sixth year, the net present value (NPV) of the project is $6,587,000. The project has a 32.69 percent probability of surviving to the end of the sixth year. The expected NPV of the project is:

A)
 $6,587,000.
B)
 $2,153,290.
C)
 $807,090.


The project’s expected NPV is a probability-weighted average of the two possible outcomes: $6,587,000 if it is successful or the loss of the initial $2,000,000 investment if it fails. The expected NPV for the project is: (0.3269 × 6,587,000) + (0.6731 × -$2,000,000) = $807,090

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