Scenario: You are an entrepreneur that has several business investments in real estate, restaurants, and retail stores. You are looking for
your next investment opportunity for you and your private equity investment company. You have found two possible alternatives to invest in that
will payoff in the next 10 years. Here are the descriptions of the two options.
Option A: Real estate development. This is a risky opportunity with the possibility of a high payoff, but also with no payoff at all. You have
reviewed all of the possible data for the outcomes in the next 10 years and these are your estimates of the Net Present Value of the cash flow
and probabilities.
High NPV: $5 million, Pr = 0.5
Medium NPV: $2 million, Pr = 0.3
Low NPV: $0, Pr = 0.2
Option B: Retail franchise for Just Hats, a boutique type store selling fashion hats for men and women. This also is a risky opportunity but
less so than option A. It has the potential for less risk of failure, but also a lower payoff. You have reviewed all of the possible data for
the outcomes in the next 10 years and these are your estimates of the Net Present Value of the cash flow and probabilities.
High NPV: $3 million, Pr = 0.75
Medium NPV: $2 million, Pr = 0.15
Low NPV: $1 million, Pr = 0.1
Assignment
Develop an analysis of these two investments. Use expected value to determine which of these you should choose. Do your analysis in Excel.
Write a report to your private investment company and explain your analysis and your recommendation. Provide a rationale for your decision.
Upload both your written report and Excel file to the SLP 2 Dropbox.
BONUS: If these two options could be made to be equal, what would have to change in the payoffs in Option A to make it equal to Option B (not
the investment amount)?
SLP Assignment Expectations
Analysis
Accurate and complete analysis in Excel.
Written Report
Length requirements = 2–3 pages minimum (not including Cover and Reference pages)
Provide a brief introduction/ background of the problem.
Complete and accurate Excel analysis.
Written analysis that supports Excel analysis, and provides thorough discussion of assumptions, rationale, and logic used.
Complete, meaningful, and accurate recommendation(s).
TAKE ADVANTAGE OF OUR PROMOTIONAL DISCOUNT DISPLAYED ON THE WEBSITE AND GET A DISCOUNT FOR YOUR PAPER NOW!