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Activity 3

Aishwarya Thapa

Westcliff University

BUS 621: Entrepreneurial Finance

Prof Dr. Gopal Bhatta

August 2, 2021
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Introduction

It is very essential for venture to make strategies and implement them to successfully

operate to get good business outcome is the venture performance. Venture operating activities is

going well and can make good decision for the investment which is required and get

opportunities of good investor ( Akuraun, Nmadu, Dakung, & Gajere, 2019). Successfully

operated venture with the proper use of advance strategies show the performance of ventures.

Black hole, living dead, and venture utopia the perspective of venture performance mainly shows

the revenue, return to the investment and how the company can sustain in future.

 Black Hole

According to (Becker, Aufseb, & Brem), this kind of performance cannot show profit or

any type of revenue at all and the investor loses it interest toward the business and lends

to shut down of the business. In such cases the business has to walk away from the

market as it is already in a huge loss and cannot get any return.

 Living Dead

In such performance the business is in a breakeven point neither loss nor profit for certain

years. This can be seen that the business is hardly sustaining in the market with very less

return but can still operate the business activity and no support is necessary (Antretter,

Blohm, Grichnik, & Grichnik, 2019).

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 Venture Utopia

In such performance the business is doing very well and the rate or return is high than

calculated or estimated. The investor is very satisfied with the return in such case. The

investment is divided in various sectors so the return is more.

The utopia of the business is divided in different sector to get more return as this types of

performance is good for the business but it is very hard to achieve as many strategies is required

to get more return depending on the market circumstances (Dolan, 2011). Good leadership skills

are essential for the business to implement correct decision plan and grab the correct group of

consumers. The business need to maintain its projected financial years reports and plan

accordingly. Proper market study is significant and knows the changes in the market which can

impact the business and the cash flow. Utopia level is hard to achieve but it fulfills and satisfy

the need of the investors. This can also create competitive advantage in the market.

2 a. Estimate the terminal value of the venture at the end of Year 5 if the discount rate at that

time is 20%.

Given:

Free cash flow (C) = $2,000,000

Terminal Growth Rate (GR) = 7% =0.07

Discount Rate (D) = 20% = 0.2

We have,

Terminal Value = C x (1+GR)/ (D-GR)

= 2,000,000 x (1+ 0.07) / (0.2 -0.07)

= 2,000,000 x 1.07/ 0.13

= $ 16,461,538.46
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b. Present value (P.V) of the venture at Year 0 if the venture investor wants a 40% annual

rate of return on the investment.

Here,

Future Value (F.V) = Terminal Value = $16,461,538.46

Rate of Return (R) = 40%= 0.4

Time (T) = 5 Years

Here,

(P.V) = (F.V)/ (1+R) ^T

= $16,461,538.46 (1+ 0.4) ^5

= $ 3060766.805

a. Given:

Estimated Net Income (I): $1,600,000

Time Period (T) = 5 years

Current Earning (E) = $1,000,000

Current Market Value or Capitalization (M.V) = $10,000,000

Estimate the value of the new venture at the end of Year 5.

Here,

Terminal (Cap Rate) = E/ M.V

= 1,000,000/ 10,000,000

= 10%

Now,
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Terminal Value = I/ Terminal Cap Rate

= 1,600,000/ 0.1

= 16,000,000

b. Estimate the present value of the venture at Year 0 if the venture capitalist wants a

40% annual rate of return on the investment.

F.V. = Terminal Value= 16,000,000

R = 40%

T= 5 Years

Here,

P.V = F.V/ (1+R) ^T

= 16,000,000/ (1+0.4) ^5

= $ 2974950.913
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Conclusion

To conclude, determining the profit and to know how the business is going to sustain is

very essential to understand, which can be only done with measuring the venture performance

and can plan the future accordingly. It assists to know how to make good judgment for the

company and make decision making. It is very crucial to know about the black hole, living dead

and utopia venture has it provides the proper meaning and gives advanced knowledge which is

necessary. Higher ROI plays a significant role as if the investor gets high ROI they invest in the

business easy so for that utopia is the expansion ( Akuraun, Nmadu, Dakung, & Gajere, 2019). In

the above calculation the terminal value and present value is calculated to make investment

decision for the investor of the business.

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References

Akuraun, S., Nmadu, M. T., Dakung, R., & Gajere, M. C. (2019, June). Entrepreneurial passion
and venture performance: a proposed framework. Management Research Review, 42(2),
1133-1145. doi:DOI:10.1108/MRR-10-2018-0382
Antretter, T., Blohm, I., Grichnik, D., & Grichnik, D. (2019, January). Predicting new venture
survival: A Twitter-based machine learning approach to measuring online legitimacy.
Journal of Business Venturing Insights, 11(6), 1-8. doi:DOI:10.1016/j.jbvi.2018.e00109
Becker, A., Aufseb, D. z., & Brem, A. (n.d.). Beyond traditional developmental models: A fresh
perspective on entrepreneurial new venture creation. International Journal of
Entrepreneurial Venturing, 7(2), 152. doi:DOI:10.1504/IJEV.2015.068591
Dolan, J. (2011, October). Performance, Utopia, and the "Utopian Performative. Theatre
Journal, 53(3), 455-479. doi:DOI:10.1353/tj.2001.0068