Both projects are in the same industry, and appear to have a similar cost of capital, in the opinion of some analysts. The IRRs are similar. What project is preferable for most investors? Why?

Year	0	1	2	3	4	5
Alpha Project	-200	0	0	0	300	0
Beta Project	-200	80	80	80	0	0

9. Valuation:

A small hi-tech company asks your PE fund if the PE fund wants to buy the company.

• In year 0, the company had a negative net income. Year 0 has already occurred, so you do not need to include such results.
• The company managers believes that negative income will turn positive, as sales grow.
• The hi-tech firm works in the cloud, and it has few fixed assets, so depreciation is zero. Capital expenses are zero.
• Working capital requirements are 15% of revenue.
• You believe, if the company achieves the forecasts, the PE fund can sell the company for $300 million in four years.
• For similar risky investments, the PE fund uses a project WACC discount rate of 40%.

What is your estimated company present value at the end of year 0, i.e., when the forecasts begin?

Year	0	1	2	3	4
Revenue	20	40	70	100	130
Net income	-10	-10	-5	+10	+15
Working capital needs	1.5	?	?	?	?
Sale of the company	--	--	--	--	300