2 Venture Present Values The TecOne Corporation is about to begin producing and selling its prototype product Annual cash flows for the next five years are forecasted as Year Cash Flow 1 $50,000 2 $20,000 3 $100,000 4 $400,000 5 $800,000 (Feel free to solve using Excel and copy paste your results below A table is set up below to get you started you can copy and paste this into Excel ) A Assume annual cash flows are expected to remain at the $800,000 level after Year 5 (i e , Year 6 and thereafter) If TecOne investors want a 40 percent rate of return on their investment, calculate the ventures present value Assume this cell is A1 in Excel Y1 Y2 Y3 Y4 Y5 Annual Cash Flow Use cash flows provided above Use cash flows provided above Use cash flows provided above Use cash flows provided above Use cash flows provided above Terminal Value (VCF at Time T Terminal discount rate terminal growth rate) (These will be blank) (These will be blank) (These will be blank) (These will be blank) (TV Goes Here) Total Flow to be Discounted (sum two rows above) Present Value 40 If using Excel, enter NPV(0 4, B4 F4) (These will be blank) (These will be blank) (These will be blank) (These will be blank) B Now assume that the Year 6 cash flows are forecasted to be $900,000 in the stepping stone year and are expected to grow at an 8 percent compound annual rate thereafter Assuming that the investors still want a 40 percent rate of return on their investment, calculate the ventures present value Now extend Part B one step further Assume that the required rate of return on the investment will drop from 40 percent to 20 percent beginning in Year 6 to reflect a drop in operating or business risk Calculate the ventures present value Lets assume that TecOne investors have valued the venture as requested in Part C An outside investor wants to invest $3,000,000 in TecOne now (at the end of Year 0) What percentage of ownership in the venture should the TecOne investors give up to the outside investor for a $3,000,000 new investment

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2 . [Venture Present Values] The TecOne Corporation is about to begin producing and selling its prototype product. Annual cash flows for the next five

2. [Venture Present Values] The TecOne Corporation is about to begin producing and selling its prototype product. Annual cash flows for the next five years are forecasted as:

Year Cash Flow

1 -$50,000

2 -$20,000

3 $100,000

4 $400,000

5 $800,000

(Feel free to solve using Excel and copy/paste your results below. A table is set up below to get you started; you can copy and paste this into Excel. )

A. Assume annual cash flows are expected to remain at the $800,000 level after Year 5 (i.e., Year 6 and thereafter). If TecOne investors want a 40 percent rate of return on their investment, calculate the ventures present value.

*Assume this cell is A1 in Excel*	Y1	Y2	Y3	Y4	Y5
Annual Cash Flow	Use cash flows provided above	Use cash flows provided above	Use cash flows provided above	Use cash flows provided above	Use cash flows provided above
Terminal Value (VCF at Time T/Terminal discount rate - terminal growth rate)	(These will be blank)	(These will be blank)	(These will be blank)	(These will be blank)	(TV Goes Here)
Total Flow to be Discounted (sum two rows above)
Present Value @40%	If using Excel, enter =NPV(0.4, B4:F4)	(These will be blank)	(These will be blank)	(These will be blank)	(These will be blank)

B. Now assume that the Year 6 cash flows are forecasted to be $900,000 in the stepping stone year and are expected to grow at an 8 percent compound annual rate thereafter. Assuming that the investors still want a 40 percent rate of return on their investment, calculate the ventures present value.

Now extend Part B one step further. Assume that the required rate of return on the investment will drop from 40 percent to 20 percent beginning in Year 6 to reflect a drop in operating or business risk. Calculate the ventures present value.
Lets assume that TecOne investors have valued the venture as requested in Part C. An outside investor wants to invest $3,000,000 in TecOne now (at the end of Year 0). What percentage of ownership in the venture should the TecOne investors give up to the outside investor for a $3,000,000 new investment?