1. Calculate the present value of each scenario or outcome for Black Hawk Products.

2. Calculate the weighted average of the present values for the three scenarios. What is the total equity value for the Black Hawk Products venture?

3. Determine the acquired percentage of final ownership of Black Hawk Products that Vail Venture Investors would need for its $5 million proposed investment.

Vail Venture Investors, LLC is trying to decide how much percent equity ownership in Black Hawk Products it will need in exchange for a $5 million investment. It has a target compound rate of return of 25 percent on venture investments like Black Hawk Products. Depending on the success of products currently under development, its investment in Black Hawk could turn out to be a complete failure (black hole), barely surviving (living dead), or wildly successful (venture utopia). Vail Venture assigns probabilities of 20, 50, and 30, respectively, to the three possible outcomes. Following are the 3 cash flow scenarios for the Black Hawk Products investment that Vail Venture expects to exit at the end of five years. Outcome Black Hole Living Dead Venture Utopia Yr1 0 0 Yr2 0 0 0 Yr3 0 0 0 Yr4 0 0 0 Yr5e $0 $10 million $50 million