Alex wants to determine the present value of his investment.

Alex wants to determine the present value of his investment. The cyber security company is currently in the development stage but hopes to “begin” operations early next year. After-tax cash flows during the next five years are expected to be as follows: Year 1 = -$1.5 million, Year 2 = 0, Year 3 = 0, Year 4 = $2.5 million, and Year 5 = $3 million. Cash inflows are expected at 5% annual rate thereafter. The discount rate is assumed at 35% for year 1-5 and 20% after year 5.

1) Determine the STY terminal or horizon value at the end of five years.= ?

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2) What is the present value of the cyber security company?

(3) What percent ownership interest should Alex be willing to give to a venture investor, Jose, for her $1,000,000 investment?

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