Jim, the owner$-$manager of the FrothySlope microbrewery and restaurant in a small Colorado ski town, who has recently been the object of potential investor attention. The success of his first brewpub and the local popularity of his microbrews have resulted in a direct offer to invest $$100,000$ in ongoing operations and a desire to consider bottling and broader distribution.

At the first step we must calculate the valuation of Jim$’$s Brewpub.

To conquer his problem, we divide the future into five years of explicitly forecasted cash flows and a continuing $($terminal value$)$ period for Year $6$ and beyond. Jim provides us with his best guess

for what his venture would have left over after all operating expenses and reinvestments

in the first five years: $$0$ this year, $$0$ next year, $$0$ the third year, $$2,500,000$ the fourth year, and $$3,000,000$ the fifth year $($Year $5=$ T $–1$ in this example$).$ In the sixth year, Jim believes that the mature venture would have a surplus $($after reinvestment$)$ of about $$3,500,000,$ and this would be expected to grow at roughly $6$ percent per year after Year $6.$

He believes that his potential investor $($and he$)$ should expect to make about $40$ percent on a five$-$year investment; his investor has other equally risky investment alternatives that would provide a similar return if successful. Jim can$’$t see investors $($himself included$)$ expecting to make more than about $20$ percent a year for a mature brewpub and distribution operation;

Required :

a$.$ Calculate the pre money valuation of Jim$’$s Brewpub $!($using DCF PV formula$)$

b$.$ Calculate the post money valuation of Jim$’$s Brewpub $!$