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:
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The probability is calculated as: (1 ? 0.30) × (1 ? 0.28) × (1 ? 0.28) × (1 ? 0.25) = 0.2722 or 27.22%
[此贴子已经被作者于2011-4-2 11:28:31编辑过]
Which of the following statements regarding venture capital theory is CORRECT?
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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.
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:
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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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