Ben Toucan, owner of The Aspen Restaurant, wants to determine the present value of his investment. The Aspen Restaurant is currently in the development stage but Toucan hopes to begin operations early next year. After-tax cash flows during the next five years are expected to be as follows: Year 1 5 0, Year 2 5 0, Year 3 5 0, Year 4 5 $2.5 million, and Year 5 5 $3 million. Cash inflows are expected to be $3.18 million in Year 6 and are expected to grow at a 6 percent annual rate thereafter. Venture investors often use different discount rates when valuing ventures at various stages of their life cycles. For example, target discount rates by life cycle stage are: development stage, 50 percent; startup stage, 40 percent; survival stage, 35 percent; and early rapid-growth stage, 30 percent. As ventures move from their late rapid-growth stages and into their maturity stages, a 20 percent discount rate is often used.

1. Assume maturity stage t=6 through perpetuity,

Calculate PV of Cash Flows assuming Development Stage t=1 to t=5?

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