1. Calculate the discount rate consistent with a cap rate of 12 percent and a growth rate of 6 percent. Show how your answer would change if the cap rate dropped to 10 percent while the growth rate declined to 5 percent.

2. A venture investor wants to estimate the value of a venture. The venture is not expected to produce any free cash flows until the end of Year 6, when cash flow is estimated at $2,000,000, and is expected to grow at a 7 percent annual rate per year into the future. A. Estimate the terminal value of the venture at the end of Year 5 if the discount rate at that time is 20 percent.

3. A venture capitalist wants to estimate the value of a new venture. The venture is not expected to produce net income or earnings until the end of Year 5 when the net income is estimated at $1,600,000. A publicly traded competitor or comparable firm has current earnings of $1,000,000 and a market capitalization value of $10,000,000. A. Estimate the present value of the venture at the end of Year 0 if the venture capitalist wants a 40 percent annual rate of return on the investment.

4. Suppose you are considering a venture conducting a current financing round involving an issue of 100,000 new shares at $3. The existing number of shares outstanding is 200,000. What are the related pre-money and post-money valuations.