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### Investment Analysis Methodologies - Internal Rate of Return

<div xmlns="http://www.w3.org/1999/xhtml">Time value of money is one of the most important yardstick used by Venture Capitalists before investing. The internal rate of return (IRR) method of analyzing an investment utilizes the time value of money. This parameter provides you an option of calculating interest rate that is equivalent to the dollar returns that you expect from an investment. This helps you in comparing to the rate you can earn by investing in projects of similar merits.<br />
<br />Lower Internal Rate of Return with respect to cost of borrowing indicates a money losing proposition. So typically a Venture Capitalist will be looking for reasonably high Internal Rate of Return when compared with Cost of borrowing. This is expected as Venture Capitalist is in the market to make money for the risk taken, time spent and trouble taken.<br />
<br />Let us consider an example. A venture capitalist is studying an investment where initial cost of the project is \$750,000 and expected return is \$200,000 per year for next 5 years or \$1,000,000 in total. So Internal Rate of Return here is 10%. Suppose cost of borrowing is 2%. That gives the Venture Capitalist has a margin of 8% which may be worth his while to invest in the project.<br />
<br />Cash flow evaluation and not income from investment is the goal of Internal Rate of Return Analysis, as Income from investment is a skewed figure as it includes depreciation etc.<br />
<br />
</div><p><div class="blogdisclaim"><a href="http://businessworks.blogspot.com/2005/08/investment-analysis-methodologies_09.html">This post originally appeared on an external website</a></div>

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### Investment Analysis Methodologies - Discounted Cash Flow

<div xmlns="http://www.w3.org/1999/xhtml">Venture Capitalists, in absence of a solid predictable path, rely on these popular methodologies to arrive at crucial decisions about investments. Discounted cash flow and compound interest are two sides of a coin.<br />
<br />As we know, a dollar you have today is worth more than a dollar you'll have at some point in future, because you can invest today's dollar and earn interest on it starting today. Inflation hasn't eroded today's dollar yet.<br />
<br />Conversely it is true that a future dollar is worth less in today's terms so it has to be discounted to get it's present value. "Discounting" is a way of expressing the loss of interest income and/or erosion by inflation that you suffer by not getting that dollar until some point in the future. <br />
<br />There are ready tables available that shows how much \$100, to be paid at the end of various periods in the future, is currently worth, with interest at different rates, compounded annually. <br />
<br />To use the table, find the vertical column under your interest rate (your cost of capital). Then find the horizontal row corresponding to the number of years it will take to receive the payment. The point at which the column and the row intersect is your present value of \$100. You can multiply this value by the number of dollars you expect to receive, in order to find the present value of the amount you expect. <br />
<br />
<table border="2" bordercolor="#000000">
<caption align="center">net present value of \$100 table</caption>
<tr>
<td>years</td>
<td>9.0%</td>
<td>9.5%</td>
<td>10.0%</td>
<td>10.5%</td>
</tr>
<tr>
<td>1</td>
<td>\$**.74</td>
<td>\$**.32</td>
<td>\$90.90</td>
<td>\$90.49</td>
</tr>
<tr>
<td>2</td>
<td>\$84.16</td>
<td>\$83.40</td>
<td>\$82.64</td>
<td>\$81.89</td>
</tr>
<tr>
<td>3</td>
<td>\$77.21</td>
<td>\$76.16</td>
<td>\$75.13</td>
<td>\$74.11</td>
</tr>
<tr>
<td>4</td>
<br />
<td>\$70.84</td>
<td>\$69.55</td>
<td>\$68.30</td>
<td>\$67.07</td>
</tr>
<tr>
<td>5</td>
<td>\$64.99</td>
<td>\$63.52</td>
<td>\$62.09</td>
<td>\$60.70</td>
</tr>
<br />
<tr>
<td>6</td>
<td>\$59.62</td>
<td>\$58.01</td>
<td>\$56.44</td>
<td>\$54.93</td>
</tr>
<tr>
<td>7</td>
<td>\$54.70</td>
<td>\$52.97</td>
<td>\$51.31</td>
<td>\$49.71</td>
</tr>
<tr>
<td>8</td>
<td>\$50.18</td>
<td>\$48.38</td>
<td>\$46.65</td>
<td>\$44.98</td>
</tr>
<tr>
<td>9</td>
<td>\$46.04</td>
<td>\$44.18</td>
<td>\$42.40</td>
<td>\$40.71</td>
</tr>
<tr>
<td>10</td>
<td>\$42.24</td>
<td>\$40.35</td>
<td>\$38.55</td>
<td>\$36.84</td>
</tr>
</table> <br />
<br />So for example if a Venture Capitalist has to wait for 6 years before he can expect any profits from the venture. Next he assumes 10% interest (cost of capital). After 6 years, his capital of \$1,000,000 will be worth \$564,400 in today's dollars! That is the time value of the money.<br />
<br />
</div><p><div class="blogdisclaim"><a href="http://businessworks.blogspot.com/2005/08/investment-analysis-methodologies_11.html">This post originally appeared on an external website</a></div>

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### Transition from Blogger to WordPress

<div xmlns="http://www.w3.org/1999/xhtml">BusinessWorks Blog will be celebrating it's First Birthday on September 24th, 2005. It is already experiencing growing pains. <a href="http://www.google.com" target="_blank" title="Google's">Google's</a> <a href="http://www.blogger.com" target="_blank" title="Blogger">Blogger</a> is my current Blogging Engine and it has served me well, but it lacks a few critical features like Categories, Search facility, trackbacks that a Blog like mine needs. I am planning to move the blog to a different host and use <a href="http://wordpress.org/" target="_blank" title="WordPress">WordPress</a> as my Blogging Engine. To better serve my readers, each post will be categorized and search will be embedded in the page to find the content you need. There will be lot more features added, with a new theme, current month calendar to find the posts and much more. Current Blog will remain active during the process and once the transition is complete, it will redirect visitors to the new blog.<br />
<br />Please bear with me for the inconvenience caused, until this transition is completed. The posts will be sporadic and few in coming week, but once the transition is complete, it will be atleast one post per day as usual.</div><p><div class="blogdisclaim"><a href="http://businessworks.blogspot.com/2005/08/transition-from-blogger-to-wordpress.html">This post originally appeared on an external website</a></div>

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### Carnival of Capitalist is up at Weekend Pundit - 15-Aug-2005

</div><p><div class="blogdisclaim"><a href="http://businessworks.blogspot.com/2005/08/carnival-of-capitalist-is-up-at.html">This post originally appeared on an external website</a></div>

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### Entrepreneurs Beware! Working long hours can be injurious to your health

It is not uncommon for entrepreneurs to work long hours during start-ups and long time afterwards. This does take a toll on entrepreneurs. Long hours can increase the risk of injuries and health. Statistics are scary. 61% of people faced chances of injury during overtime and injuries were not restricted to any particular segment of the industry. It affected non-labor intensive jobs too. Read this article on <a href="http://www.redherring.com/Article.aspx?a=13230&hed=Startup%20Hours%20Threaten%20Health" title="Red Herring" target="_blank">Red Herring</a> website.<p><div class="blogdisclaim"><a href="http://businessworks.blogspot.com/2005/08/entrepreneurs-beware-working-long.html">This post originally appeared on an external website</a></div>

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### New BusinessWorks site is up and running.

<div xmlns="http://www.w3.org/1999/xhtml">Finally, the new site is up and running. There are few updates left to be done, but it wont affect you, the readers. All previous posts are in the process of being categorized, but it takes time. Meanwhile, you will be able to search keywords and hopefully find what you are looking for in this blog. The conversion from Blogger to Wordpress was a relatively painless process, with some help from the online resources and my son.<br />
<br />Please note this website will remain online as long as possible. However new posts will only appear at the new website.<br />
<br />This transition changes few things:<br />
<br />
<u>A note to New Visitors:</u>
<br />
<br />See you all there!</div><p><div class="blogdisclaim"><a href="http://businessworks.blogspot.com/2005/08/new-businessworks-site-is-up-and.html">This post originally appeared on an external website</a></div>

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