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Bristow Ent Fin Ch6

# Bristow Ent Fin Ch6 - Chapter 6 AN ENTREPRENEURIAL CAPITAL...

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Chapter 6 AN ENTREPRENEURIAL CAPITAL BUDGETING MODEL

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2 Where do you begin? All proposals should be presented in the same format: 3 Income Statements, 3 Balance Sheets, 3 Cash Flow Statements. most likely scenario, most pessimistic scenario, and most optimistic scenario. Each statement should have a “ Time 0 ” column, first year quarterly, and yearly after that. ENTREPRENEURIAL MODEL
3 With each proposal in this standard format, we next need to get the Internal Rate of Return (IRR) for each scenario. Discount Item 7 , the Net Change in Cash , for each scenario to get the IRR for each scenario. ENTREPRENEURIAL MODEL

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4 With three IRR’s we can now get the “ Expected Internal Rate of Return ” - ERR - for a proposal with the following formula: ERR = Where a = IRR for Most Pessimistic Scenario b = IRR for Most Optimistic Scenario m = IRR for Most Likely Scenario The Standard Deviation we estimate as σ i = ( b - a ) 2 36 ENTREPRENEURIAL MODEL e i = a + 4m + b 6
5 (1) OPTIMIZE Where , where a , m and b are IRR’s for each proposal w i = Value of Item 7 at time 0 for the i th proposal k = NOCF’

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Bristow Ent Fin Ch6 - Chapter 6 AN ENTREPRENEURIAL CAPITAL...

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