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NEW QUESTION: 1
Factory calendars are assigned to the maintenance plant and work center.
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B. Production work center linked to a technical object
C. Planning plant
D. Maintenance plant
Answer: A
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A venture capital investment is expected to yield of payoff of $100 million in five years if it survives.
The initial cost is $20 million and the appropriate discount rate is 20%. What is the average annual probability of failure that makes the investment's NPV = 0? In other words, what is the maximum annual average probability of failure before the investment is not acceptable?
A. 13%
B. 20%
C. 17%
Answer: A
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The NPV is equal to zero when: Discounted expected payoff = Initial cost
[(1 - Average prob)5 $100 million] / (1.20)5 = $20 million Average annual probability = 0.1303, or 13%
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