A new venture requires an initial capital investment and assets of $2 million. Similar ventures in the same industry have been able to achieve sales levels of 60 to 100 percent of assets, with profitability on sales of from 10 to 30 percent (net profit). Demand for the ventures product is expected to grow at a rate of 2 to 13 percent per year.

a. Using the midpoints of the ranges, develop a pro forma forecast of the venture for five years, assuming sales growth matches the growth of market demand. How much free cash is the venture expected to generate in each year, or how much additional financing is needed in each year?

b. Develop a worst case pro forma analysis for five years, assuming all of the uncertainties turn out at the low ends of the ranges. How does this affect the ability of the venture to distribute cash or the need to raise additional capital?

c. Develop a best case pro forma analysis assuming the uncertainties are resolved at the high end of the range, and evaluate the cash needs or disbursement capabilities of the venture under those conditions.

d. Suppose you want to develop a pro forma analysis of the worst case in terms of the financial needs of the venture. How would you use the information about the uncertainties of the various assumptions to do so?