Cybercode is a cyber-software company in early development. The firm has already built its first prototype and secured a number of government contacts that are slowly paying off. However, a significant new investment is required to expand the product to penetrate private markets. In particular, the firm is developing a novel approach to encrypting financial data flows and plan to start selling the new software to banks and insurance companies starting in 2015.

Cybercodes 2013 and 2014 balance sheet and income statement are included in the excel file. Please, use this information to answer the following questions.

Assume that the asset intensity will remain constant at the level of 2014, build a projection of free cash flow for Cybercode under the following assumptions:

Assume that sales growth in 2015-2019 will remain the same as in 2014 and becomes constant in 2020 at the rate of 5% forever.

Assume that the asset intensity will remain constant at the level of 2014.

Assume that in 2015 and later net income turns to positive due to reduced development costs and is equal to 20% of sales.

Apply DCF to calculate the valuation for the venture at the end of 2013 if the discount rate is 15%.

If investors and founders agree on the valuation from part c, what ownership would they seek to give a company $20M?

2014 2013 Thousands of dollars 7,567 $ 9,876 Subscription Sales Support Services S 180 $200 7,747 $ 10,076 Costs of Goods Sold-Support Services 0,560)(a591) Total Sales $ (450)(650) $ 2,010) $ 2,241) $ 5,737 S 7,835 Costs of Goods Sold-Devices 10 Totals Costs 12 Gross Margin 13 14 15 Operating Expenses 16 $2,100)$ (2,589) $ (3,7s0) (4,639) $ (891) (1,890 Research and Development Sales and Marketing 17 G&A 18 19 20 (6,741) 9,118) Total Operating Expenses 21 S (.283) S (527) (687) $ 0,531) $ (,970) $ (1,004) Operating Income 23 24 25 Taxes 26 27 28 29 30 31 32 Net Income 34 35 36 37 38 39 40 41 42 1 Thousands of dollars 2013 2014 11,870 $ 12,160 5,240 $ 8,932 Cash and Equivalents Receivables 17,110 $21,092 Total Current Assets 6 8 Property and Equipment 9 Other Assets 10 460 $ 955 1,081 $ 1,23 Total Assets 18,651 $ 23,283 12 13 14 15 16 17 18 19 20 21 469 $ 780 3,670 $5,489 640 $ 961 Account Payable Accrued Liabilities Deffered Revenue Total Liabilities Total Equity Total Liabilities and Equity 4,779$ 7,230 13,872 $16.053 18,651 $ 23,283 23 24 25 26 27 28 29 30 31 32 34 35 36 37 38 39 40 41 2014 2013 Thousands of dollars 7,567 $ 9,876 Subscription Sales Support Services S 180 $200 7,747 $ 10,076 Costs of Goods Sold-Support Services 0,560)(a591) Total Sales $ (450)(650) $ 2,010) $ 2,241) $ 5,737 S 7,835 Costs of Goods Sold-Devices 10 Totals Costs 12 Gross Margin 13 14 15 Operating Expenses 16 $2,100)$ (2,589) $ (3,7s0) (4,639) $ (891) (1,890 Research and Development Sales and Marketing 17 G&A 18 19 20 (6,741) 9,118) Total Operating Expenses 21 S (.283) S (527) (687) $ 0,531) $ (,970) $ (1,004) Operating Income 23 24 25 Taxes 26 27 28 29 30 31 32 Net Income 34 35 36 37 38 39 40 41 42 1 Thousands of dollars 2013 2014 11,870 $ 12,160 5,240 $ 8,932 Cash and Equivalents Receivables 17,110 $21,092 Total Current Assets 6 8 Property and Equipment 9 Other Assets 10 460 $ 955 1,081 $ 1,23 Total Assets 18,651 $ 23,283 12 13 14 15 16 17 18 19 20 21 469 $ 780 3,670 $5,489 640 $ 961 Account Payable Accrued Liabilities Deffered Revenue Total Liabilities Total Equity Total Liabilities and Equity 4,779$ 7,230 13,872 $16.053 18,651 $ 23,283 23 24 25 26 27 28 29 30 31 32 34 35 36 37 38 39 40 41