1. Curtis Corporation is about to begin producing and selling its prototype product. The companys forecasted annual cash flows for the next five years are as follows:

YEAR	CASH FLOW ($ 000)
1	-58,500
2	-23,250
3	117,000
4	468,750
5	937,500

Required:

1. Assume the annual cash flows are expected to remain at $937,500 level after Year 5 (i.e., Year 6 and thereafter). If Curtis investors require a 40 percent rate of return on their investment, compute the present value of the venture.
2. Calculate the ventures present value assuming the following:

• That the Year 6 cash flows are forecasted to be $1,054,500 in the stepping-stone year and are expected to grow at an 8 percent compound annual rate thereafter.
• That the investors still require a 40 percent rate of return on their investment.

3. Assume that Curtis investors have valued the venture as requested in part (ii) above and an outside investor wants to invest $3.585 million in Curtis Corporation now (at the end of Year 0). What percentage of ownership in the venture should the Curtis investors give up to the outside investor for a $3.585 million new investment?