Strategic investment: price the stake and the synergies separately
A fictional chip designer is considering a minority investment in a supplier. The investment case combines the value of the stake with synergies accruing directly to the buyer. The investment committee wants a clear separation of those value streams and a conditional recommendation.
Original Finance Circle strategic-investment scenario, separate from the RocketBlocks case. Every deal term, probability and cash flow below is illustrative and is not an actual NVIDIA–Intel transaction term or official employer question.
Independent Finance Circle learning material. The source organisation does not sponsor, author or endorse this exercise.
Clarify. Structure. Calculate. Defend.
Take 2 minutes to clarify the decision and definitions, 3 minutes to structure the analysis, then work the exhibits. Finish with a concise recommendation and answer a follow-up. The time is a suggested practice format, not an employer requirement.
Clarify before solving
What are the data basis and reporting boundary?
Original Finance Circle strategic-investment scenario, separate from the RocketBlocks case. Every deal term, probability and cash flow below is illustrative and is not an actual NVIDIA–Intel transaction term or official employer question.
Which assumptions can I use without requesting more data?
USD billions. Pay 2 today for a 20% equity stake. No interim distributions or dilution. At the end of year 5, target equity value is 15 in a success scenario (70% probability) or 5 in downside (30%). These are equity values, so do not subtract debt again.
What decision am I expected to support?
Calculate the equal annual buyer-only synergy needed for zero combined NPV. Then calculate combined NPV when annual synergy is only 0.20.
Build your structure
- Investment objective, stake and control rights
- Standalone stake value under equity scenarios
- Incremental buyer-only synergies and double counting
- Downside, governance protections and approval conditions
Use the branches that matter to this decision. A memorised framework is less useful than explaining why each analysis could change your recommendation.
Everything you need to work the case.
Assumptions & boundaries
- USD billions. Pay 2 today for a 20% equity stake. No interim distributions or dilution.
- At the end of year 5, target equity value is 15 in a success scenario (70% probability) or 5 in downside (30%). These are equity values, so do not subtract debt again.
- Use 15% discount rate for both stated teaching streams. Buyer-only incremental after-tax synergy cash flow is 0.30 at each year-end for five years. It is not included in target terminal equity values.
- Director test reduces annual buyer-only synergy to 0.20. Ignore taxes beyond those already incorporated, fees and currency movements. Expected value is not a guarantee.
Illustrative deal and scenario inputs
| Item | Value |
|---|---|
| Initial equity investment | 2.00 |
| Stake | 20% |
| Year-5 target equity: success / downside | 15 / 5 |
| Probability: success / downside | 70% / 30% |
| Annual buyer-only synergy | 0.30, years 1–5 |
| Discount rate | 15% |
Choose the responsibility. Solve the decision.
Each level uses the exhibits above and asks a different question. Your entries stay in this open page only; copy your work before leaving.
Value the stake alone.
Calculate expected year-5 target equity, expected stake proceeds and the present value of stake proceeds.
Why not subtract target debt from the terminal values?
Numerical checks compare your arithmetic with the case model. Written recommendations are self-practice and are not automatically graded.
03 · Reveal worked solution & decision guide
Expected numerical answers
- Expected target equity
- 12 USD billion
- Expected stake proceeds
- 2.4 USD billion
- PV of stake proceeds
- 1.1932 USD billion
Work through the calculation
- Expected target equity = 70% × 15 + 30% × 5 = 12. Stake proceeds = 12 × 20% = 2.4.
- PV = 2.4 / 1.15^5. The time-zero investment is subtracted only when calculating NPV.
A strong concise response
My calculation shows that expected target equity is 12 USD billion; expected stake proceeds is 2.4 USD billion; pv of stake proceeds is 1.1932 USD billion. State whether values are enterprise or equity values. A 20% stake does not confer full control or automatically entitle the buyer to all target cash flow.
Answer the interviewer follow-up
Why not subtract target debt from the terminal values?
They are explicitly equity values. Subtracting debt again would double count it; enterprise-value scenarios would require a different bridge.
Assessment rubric · 20 points
For self-review or mentor discussion. This rubric is not an automated written-answer grade or an employer scoring system.
Correctly derives all 3 numerical results for this level, keeps signs and units consistent, and explains the method.
Explains the objective: Value the stake alone. States the supplied scope, timing and metric definitions before calculating.
State whether values are enterprise or equity values. A 20% stake does not confer full control or automatically entitle the buyer to all target cash flow. Addresses the interviewer follow-up without contradicting the facts.
Leads with a clear conclusion, distinguishes facts from assumptions, and identifies the next evidence needed. Does not claim the source company asked or endorsed this question.
Use full precision until the final rounding. Alternative written recommendations may be reasonable if they respect the facts and explain assumptions. This is Finance Circle’s guide, not an official source-company answer.
Source & attribution
The references below identify the public reporting, hiring guidance, research or mock-interview material used for context. Finance Circle wrote the exercise and its answers. Illustrative figures are explicitly identified; they are not company results or findings.
Third-party mock-interview outline and public description reviewed; full captions were unavailable. This original case does not reproduce the video’s proprietary exercises.
Company context only; no transaction inputs in this scenario are presented as NVIDIA facts.
Source reviewed 30 October 2026. No external page is needed to answer this exercise. Company names and logos identify sources only. All trademarks belong to their respective owners.