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Schwinn is about to begin producing and selling bicycles. Annual cash flows for the next...

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Accounting

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Schwinn is about to begin producing and selling bicycles. Annual cash flows for the next six years are forecasted as the following. Year 1: \$-1 mil. Year 2: \$-0.5 mil. Year 3: \$0.2 mil. Year 4: $0.4 mil. Year 5: $0.8 mil. Year 6: $1 mil, which will grow at 5\% indefinitely. Schwinn believes that potential investors (and himself) should expect to make about 40% on a fiveyear investment. However, he thinks that investors (including himself) should lower the expected return on the investment to 20% after year 5 , as the company matures. Important: there are 3 parts. Clearly mark the part \# in your response before providing your answers. Part 1) Calculate the terminal value of the venture, measured as of year 5 (4 pts). Part 2) Calculate the venture's present value. Assume that you are in year 0 (4 pts). Part 3) Suppose the venture raises $500,000 from a VC today (i.e. year 0). How much ownership stake should the venture give to the VC? (4 pts)

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