a$)$ Password Limited $($PWD$)$ has developed a new type of online security and encryption

application, which is a next generation encryption application and only the second

commercially available app of its kind. Password Ltd is a relatively new company and they

are seeking funds to commercialise additional online security applications.

They have approached venture capital company Chardonnay Ventures for funding.

Chardonnay Ventures $($CNV$)$ is considering investing into Password Ltd and is assessing

their potential investment. CNV have collected the following information:

Amount of investment: $$10$ million;

Password Ltd should become profitable in three years, so term of the investment is

three years;

The expected profit at the end of three years is $$3$ million;

Password Ltd currently has $1$ million ordinary shares on issue and outstanding, All

shares are owned by founders;

For a three$-$year investment like this, Chardonnay Ventures requires a return of $33$

percent per annum, compounding annually;

There is a similar company to Password Ltd$,$ Encrypto Intelligent Ltd $($EIL$).$ EIL

generated a profit of $$2,468,000$ last year. Ell's market value of equity is $$28$ million.

Neither Password Ltd nor Encrypto Intelligent Ltd have any debt outstanding.

Required:

$($i$)$ Use the VC method to determine the value of Password Ltd at the end of three years.

$($ii$)$ Calculate:

i$.$ The present value of Password Ltd

ii$.$ The pre$-$money value of Password Ltd

iii. The post$-$money value of Password Ltd

$($iii$)$ The percentage of Password Ltd that Chardonnay Ventures will own for the $$10$

million investment.