NAV of Spring Bay’s share in the fund was
$40 million at the end of last year. McGowen notes a 30% distribution will be paid at the end of this year. The expected growth rate of the fund is 13%.
Calculate the expected NAV of Spring Bay’s share in the venture capital fund at the end of next year.
Answer is
The expected NAV at the end of next year is $35,753,200. The expected distribution at
the end of this year is $13.56 million [($40 million × 1.13) × 30%]. The NAV at the end of
next year is, therefore, ($40 million × 1.13) × (1 − 0.30) × 1.13 = $35,753,200.
This type of question has been posted too many times and multiple people have opined that the growth rate being counted twice is wrong. However, this question has appeared on the mocks and growth rate has again been counted twice. I can’t believe that they would have made the same error on multiple questions including mock exams. So my question is: why is the growth rate being counted twice?
I think it about understand the years requited. And assuming the growth rate persists
Example 8 in book - asking for 2 tease
The NAV of an investor’s share in a private renewable energy fund was €30
million at the end of 2020. All capital has been called. The investor expects
a 20% distribution to be paid at the end of 2021. The expected growth rate is
12%. What is the expected NAV at year-end 2022?
NAV end of 2021 = 30 x 1.12 x 0.8 = 26.88
Nav end of 2023 = 26.88 x 1.12 = 30.1
As of the most recent year end: NAV of n the fund was €25,000,000.
At the end of the current year, Calixto expects a distribution of 18% to be
paid. Calixto estimates an expected growth rate of 11% for the fund.
here just asked NAV at end of year 1
25 x 1.11 x 0.82 = 22.755
Your question - I have no access to orginal NAV of Spring Bay’s share in the fund was$40 million at the end of last year. McGowen notes a 30% distribution will be paid at the end of this year. The expected growth rate of the fund is 13%.
Calculate the expected NAV of Spring Bay’s share in the venture capital fund at the end of next year.
NAV end of last year = 40 (say end of 2020)
30% distribution will be paid at the end of this year. (ie end of 2021)
The expected growth rate of the fund is 13% (for 2021 and 2022)
NAV of Spring Bay’s share in the venture capital fund at the end of next year (ie. end of 2022)
I read this you be asked the NAV 2 years from the orginal start date.
End 2021 : 40 x 1.13 x 0.7 = 31.64