The TecOne Corporation is about to begin producing and selling its prototype product.

Annual cash flows for the next five years are forecasted as:

a$.$ Assume annual cash flows are expected to remain at the $$800,000$ level after Year $5($i$.$e$.,$

Year $6$ and thereafter$).$ If TecOne investors want a $40\%$ rate of return on their investment,

calculate the venture's present value.

b$.$ Now assume that the Year $6$ cash flows are forecasted to be $$900,000$ in the stepping$-$stone

year and are expected to grow at an $8\%$ compound annual rate thereafter. Assuming that

the investors still want a $40\%$ rate of return on their investment, calculate the venture's

value.

c$.$ Now assume that the required rate of return on the investment will drop from $40\%$ to $20\%$

beginning in Year $6$ to reflect a drop$-$in operating or business risk. Calculate the new

venture's value.

d$.$ Let's assume that TecOne investors have valued the venture as requested in question $c.$ An

outside investor wants to invest $$3$ million in TecOne now $($at the end of Year $0).$ What

percentage of ownership in the venture should the TecOne investors give up to this investor

for a $$3$ million new investment?

Please show all work and include any formulas used