1. Which investment shoul

1. Which investment shoul

1. Which investment should Sammy choose?Sammy is endowed with $10,000,000 and is considering whether to invest in a business venture. Perfect capital markets, interest rate of 6%.Investment B-2 million, End of year cash flow-3.3 millionInvestment C-3 million, End of year CF-4.4 millionInvestment D-4 million, End of year CF-5.4 million2. Sammy is also considering a ticket scalping business venture. Sammy estimates that for a $2,000,000 investment in inventory she can sell the tickets for $6,000,000 in the next year (CFs realixed in precisely one year). Also has 6% interest rate. What’s the NPV of the ticket scalping venture?3. What’s the new value of Sammy’s corporation?4. Suppose that instead of using her own $2 million to start the new business venture Sammy wants to issue 100,000 new shares in order to raise equity. What price should new investors be willing to pay? How many shares need to be sold to new investors?5. How would the answer differ if Sammy isn’t guaranteed to sell the tickets for $6,000,000?6. CFs from ticket sales are estimated to have this distribution: Prob 0.2-$5M, Prob 0.5-$3M, Prob 0.3-$2M. What’s the new value of Sammy’s Corp?7. What price should outside investors be willing to pay for Sammy’s shares?

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