Initially Jim invested $150,000 in his startup. He provides us with his best guesses for what his venture would be left over after all operating expenses and reinvestments in the first five years:

Optimistic Scenario: $0 this year, $0 next year, $1,000,000 the third year, and $3,000,000 the fourth year. In the fifth year, Jim believes that the venture would mature and have the net income of $5,000,000 and valuation cash flow of $4,500,000, which would be expected to grow at 10 percent per year.

Pessimistic Scenario: $0 this year, $0 next year, $0 the third year, and $1,000,000 the fourth year. In the fifth year, Jim believes that the venture would mature and have the net income of $2,000,000 and valuation cash flow of $1,500,000, which would be expected to grow at 5 percent per year.

We know that in this industry 20 percent of new venture do not survive after first four years, and only 10 percent become venture utopias. The P/E multiple for this industry is 12.

1. What is the utopian value of Jims venture? Provide all details of your calculations. (20 points)
2. What is the P/E multiple utopian value of Jims venture? Provide all details of your calculations. (20 points)
3. What is the First Chicago discounted cash flow value of Jims venture? Provide all details of your calculations. (20 points)
4. Bill would like to invest $300,000 in Jims venture. What percentage of ownership should he ask for and why? Provide all details of your calculations. (20 points)
5. How would the ventures value change if Jim initially invested $200,000? Provide all details of your calculations. (20 points)