Problem
Scenario
You are evaluating whether to fund a new digital investing feature for a mid-sized wealth management business. The proposal would be surfaced through Merrill Edge and requires an upfront product and compliance build this quarter. Your CFO wants a recommendation that weighs upside against execution and downside risk using a 10% discount rate, and the team has narrowed outcomes to three explicit cases based on adoption and pricing assumptions. Assume cash flows occur at year-end and ignore taxes.
Financials
| Metric | Value |
|---|---|
| Upfront build and launch cost (Year 0) | $8,000,000 |
| Annual maintenance and servicing cost (Years 1-4) | $1,500,000 |
| Best-case annual incremental revenue (Years 1-4) | $6,500,000 |
| Base-case annual incremental revenue (Years 1-4) | $4,500,000 |
| Downside annual incremental revenue (Years 1-4) | $2,500,000 |
| Best-case probability | 25% |
| Base-case probability | 50% |
| Downside probability | 25% |
| Discount rate | 10% |
Question
How would you assess the investment's risk and trade-offs, and would you recommend approving it now? Use the scenario probabilities to quantify the expected return and explain what would have to be true operationally for the investment to be attractive.
Practicing as: Financial Analyst interview at MerrillHi, I'll play your Merrill interviewer for the Financial Analyst role. Candidates describe these interviews as mostly positive and moderately difficult, so expect me to be friendly and conversational. Take your time with the question above and answer like we're in the room.
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