Terminal Value = CFT / (r - g) Present Value of Cash Flow = CFT / (1+r)T Future Value of Cash Flow at T = CF0 x (1+r)T Terminal value at T-1 = CFT / (r-g)

Last digit of your student ID number (if you dont know your student ID number, please use the last digit of your birthday).: Please Use Format B, Thanks.

Format A: If your student number (birthdate) ends with 1/2/3 Format B: If your student number (birthdate) ends with 4/5/6/7 Format C: If your student number (birthdate) ends with 8/9/0

NewCo expects the following free cash flows for the next three years. NewCos cash flow expects to grow at a steady rate of 5% for the foreseeable future after Year 3.

Format Disc rate

Year 0 Year 1 Year 2 Year 3 A 15% Free cash flow -$400,000 $0 $200,000 $300,000 B 20% Free cash flow -$500,000 $0 $300,000 $400,000 C 25% Free cash flow -$600,000 $0 $400,000 $500,000

a) Using the DCF analysis, calculate the value of NewCo assuming the appropriate discount rate for the next three years and 10% afterwards. (1.5 points)

b) A reasonably comparable startup, OldCo, recently went public. Its initial market capitalization of OldCo after going public was approximately $10 million. If you believe that NewCo has 50% chance of achieving similar market capitalization in two years by going public and 50% chance of going bankrupt (with no liquidation salvage value), what would be the expected value of NewCo applying the appropriate discount rate? (1 point)

c) You learned that OldCo had 100,000 paying customer that generated approximately $2.5 million in revenue last year. NewCos CEO is confident that NewCo will gain approximately 60,000 paying customers next year generating approximately $1.0 million in revenue. Using comparables analysis based on the number of paying customers and multiple of sales, what could be the value of NewCo next year if you believed the numbers provided by NewCos CEO? What would be the present value of those figures if you apply the appropriate discount rate? (1 point)