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VenFin Ltd Is an Investment Bank that specialises in venture capital. Their team of investment specialist is in the process of evaluating Blink, a venture capital company VenFin uses the CapM to calculate its required return for venture capital investments. The following additional information has been given with regards to this:
Real risk free rate: 4.5%Inflation: 6.6%Beta: 1.6Risk premium for such investments: 7%
Blink
The teams research reveals that similar companies have the following conditional probabilities of failure, listed in the table below:
Year 1 2 3 4Probability of failure 36% 21% 13% 8%
REQUIRED:
Problem 1. What stage would best describe the venture capital investment in Blink? Name and explain
Problem 2. What investment criteria will the team apply when analyzing Blink and does this company meet this criteria?
Problem 3. What is Blink's expected NPV and what will VenFin's decision be?
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