Year 1 = -$150,000, Year 2 = 0, Year 3 = 0, Year 4 = $2.0 million, and Year 5 = $3.0 million. Cash inflows are expected to be $3.15 million in Year 6 and are expected to grow at a 5 percent annual rate thereafter. Venture investors often use different discount rates when valuing ventures at various stages of their life cycles. Assume that the required rate of return on the investment will drop from 60 percent to 20 percent beginning in Year 6 to reflect a drop in operating or business risk.
What is the Red Dirt Brewery's terminal or horizon value at the end of five years?
What percent ownership interest should Roger be willing to give to a venture investor, Syd, for his $500,000 investment?