You are an investor that contemplates investing in a new start up. You know that the profitability of the project you ar

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You Are An Investor That Contemplates Investing In A New Start Up You Know That The Profitability Of The Project You Ar 1 (42.94 KiB) Viewed 13 times

You Are An Investor That Contemplates Investing In A New Start Up You Know That The Profitability Of The Project You Ar 2 (42.95 KiB) Viewed 13 times

You Are An Investor That Contemplates Investing In A New Start Up You Know That The Profitability Of The Project You Ar 3 (42.95 KiB) Viewed 13 times

You are an investor that contemplates investing in a new start up. You know that the profitability of the project you are looking at is either Oor 2 million dollars. That is, there is some risk regarding the returns of the project: with 50% probability it will be very successful (generate a 2 million dollar cash flow) and with 50% chance it will fail (generate a 0 dollar cash flow). You find yourself in the bargaining table with the inventor of the project who tries to sell you their idea and make you invest in it. Consider the following scenarios: 0 The risk of the project is due to uncertain consumer response. That is, you don't know how much consumers will like the outcome of the project. You believe the start-upper knows as much about the consumer response as you do. Question: how much money are you willing to invest in the project? Why? Assume that you care only about the expected value of the project which is 1 million dollars (50%x0 + 50%x2,000,000). 11) Now, assume that the project values are asymmetrically distributed with 75% probability consumers will love the project and it will generate 2 million; with 25% consumers will hate it and the project will generate 0. Given this information, how much money are you willing to put in the project?

You are an investor that contemplates investing in a new start up. You know that the profitability of the project you are looking at is either 0 or 2 million dollars. That is, there is some risk regarding the returns of the project: with 50% probability it will be very successful (generate a 2 million dollar cash flow) and with 50% chance it will fail (generate a 0 dollar cash flow). You find yourself in the bargaining table with the inventor of the project who tries to sell you their idea and make you invest in it. Consider the following scenarios: D) The risk of the project is due to uncertain consumer response. That is, you don't know how much consumers will like the outcome of the project. You believe the start-upper knows as much about the consumer response as you do. Question: how much money are you willing to invest in the project? Why? Assume that you care only about the expected value of the project which is 1 million dollars (50%x0 + 50%x2,000,000).