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The Angel Investor, that is investing a million dollars, has asked for some further information. Two scenarios are of interest that concern the revenues effect on the ending cash flow amounts during the five years. The two scenarios , in addition to the "Current" one that is in the statement, are as follows:
	Year	0	1	2	3	4	5
	A1 Revenue		$200,000	$400,000	$750,000	$1,000,000	$2,000,000
	A2 Revenue		$500,000	$750,000	$1,000,000	$1,750,000	$2,500,000
a	Determine the effects of the three scenarios (Current, A1 and A2) on the five years of cash flows.
b	If the current forecast has a 40% chance of occurring, and the A1 and A2 scenarios each have a 30% chance of occurring, What is the expected value of the year 5 ending cash flow.
c	Discuss the implications of the results of parts a and b.
	Year	0	1	2	3	4	5
	Angel Investor	$1,000,000	40%	ownership
	Production capability Investment	$900,000
	Revenue		$300,000	$500,000	$1,000,000	$2,000,000	$3,000,000
	COGS	40%	of Revenue
	SG&A		$180,000	$300,000	$450,000	$600,000	$750,000
	Depreciation (MACRS)	5 year	20.00%	32.00%	19.20%	11.52%	11.52%
	Depreciation		$180,000	$288,000	$172,800	$103,680	$103,680
	Book Value	$900,000	$720,000	$432,000	$259,200	$155,520	$51,840
	Accounts Receivable	15%	of revenue
	Accounts Payable	20%	of inventory
	Wages Payable	10%	of revenue
	Inventory	25%	of revenue
	Tax rates	20%
	Income Statement
		0	1	2	3	4	5
	Revenue		$300,000	$500,000	$1,000,000	$2,000,000	$3,000,000
	COGS		($120,000)	($200,000)	($400,000)	($800,000)	($1,200,000)
	Gross Margin		$180,000	$300,000	$600,000	$1,200,000	$1,800,000
	SG&A		($180,000)	($300,000)	($450,000)	($600,000)	($750,000)
	Depreciation		($180,000)	($288,000)	($172,800)	($103,680)	($103,680)
	EBIT		($180,000)	($288,000)	($22,800)	$496,320	$946,320
	Pre-tax income		($180,000)	($288,000)	($22,800)	$496,320	$946,320
	Taxes		$36,000	$57,600	$4,560	($99,264)	($189,264)
	Net Income		($144,000)	($230,400)	($18,240)	$397,056	$757,056
	Working Capital	0	1	2	3	4	5
	Accounts Receivable	$0	$45,000	$75,000	$150,000	$300,000	$450,000
	Inventory	$0	$75,000	$125,000	$250,000	$500,000	$750,000
	Accounts Payable	($0)	($15,000)	($25,000)	($50,000)	($100,000)	($150,000)
	Wages Payable	($0)	($30,000)	($50,000)	($100,000)	($200,000)	($300,000)
	Total Working capital	$0	$75,000	$125,000	$250,000	$500,000	$750,000
	Change in Working Capital	$0	$75,000	$50,000	$125,000	$250,000	$250,000
	Cash Flow Statement
		0	1	2	3	4	5
	Operations Activities
	Net Income		($144,000)	($230,400)	($18,240)	$397,056	$757,056
	Depreciation		$180,000	$288,000	$172,800	$103,680	$103,680
	Working Capital change	($0)	($75,000)	($50,000)	($125,000)	($250,000)	($250,000)
	Total	($0)	($39,000)	$7,600	$29,560	$250,736	$610,736
	Capital Activities
	Investment	($900,000)
	Total	($900,000)
	Financial Activities
	Angel Investor	$1,000,000
	Cash Flow	$100,000	($39,000)	$7,600	$29,560	$250,736	$610,736
	Beginning Balance	$0	$100,000	$61,000	$68,600	$98,160	$348,896
	Ending Cash Balance	$100,000	$61,000	$68,600	$98,160	$348,896	$959,632

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