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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
- 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:
- 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.
- 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.
- 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?
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