Question

# Task 11: Estimate the Continuing Value of this new venture Estimate the continuing value of this new venture as at

the end of the fourth year, based on the following assumptions: • Define the Cash Flow estimate as being equal to the sum of the Cash flow from Operations plus Cash Flow from Investments estimated in your Cash Flow Statement for the fourth year. • Based on this Cash Flow estimate for the fourth year, estimate the Cash Flow for the fifth year by applying the sustainable growth rate you have estimated in Task 9 above. • Use the required return estimate from Task 10 above to define the discount rate.

Task 12: Estimate the Net Present Value of this new venture using the RADR method Estimate the Net Present Value of this new venture using the RADR method, based on the following assumptions: • Define the Cash Flow estimate for each of the four years as being equal to the sum of the Cash flow from Operations plus Cash Flow from Investments you have estimated in your Cash Flow Statement for each year. • Discount the Cash Flows for each year and the Continuing Value you estimated in Task 11, to calculate the Present Value of the new venture. Use the CAPM discount rate you estimated in Task 10. • Assume the cost of the investment to the external investor is $2,000,000, in calculating the Net Present Value to the external investor.

Task 13: Estimate the share of equity Estimate the share of equity ownership the owner would need to offer an external investor to invest $2,000,000, based on based on the valuation of the new venture you have completed above. If you have valued your own new business venture proposal, the amount of external investment required may differ and so you should base your answer to this question on the amount your venture requires.

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