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Posted: July 15th, 2022

Entrepreneurial Finance -Valuation Assignment

Entrepreneurial Finance -Valuation Assignment

This assignment requires an understanding of how the PV of discreet and terminal Cash Flows are combined to estimate entity valuation—the first step in negotiating for investment capital.

TecOne Corp. is about to begin producing and selling its prototype product (what stage of the life cycle?); it is now Year 0 and the firm projects future annual cash flows as follows:

                        Year                                        Cash Flow

1                                                                                          ($50,000)

2                                                                                          ($20,000)

3                                                                                          $100,000

4                                                                                          $400,000

5                                                                                          $800,000

Assume cash flows after year 5 stay @ $800,000.  Investors want a 40% return for a Year 0 investment; what is TecOne’s present value?

 Now assume year 6 CF will be $900,000; and annual CFs are expected to grow thereafter at 8%.  If investors still require a 40% project return, what is the firm’s present value?

If the required rate of return on CFs during the maturity stage will drop from 40% to 20% beginning in year 6, what is TecOne’s present value? (what is a possible explanation for this change?)Using the last present value calculation, what % ownership would the firm’s founders have to

give up to secure $3,000,000 in outside funding at Year 0?

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