| Topic Name: |
vc valuation |
| Message Name: |
brilliance |
| Date Posted: |
04/03/2002 |
| In Reply To: |
that's what i meant by E, i meant sigma, or sum of cash flows. plus, i said that this was a simplified model...the formula does yield a result; the irr is the rate at which npv = 0, taking into account all cash inflows and outflows. your formula basically restated mine, although in a different form. |
| Message: |
riiiight.
so basically you're either the kind of student who runs back to professors' offices after exams to explain what you REALLY meant when you wrote those answers
or the kind of investor who runs back to lawyers to explain what you REALLY meant when you wrote that term sheet
there is no sane interpretation of your math that makes it correct.
1 + r^i <> (1+r)^i
% of capital / (1+r^i) = 0 cannot possibly compute IRR in closed form, unless "% of capital" is equivalent to the FV of all cash flows, which itself involves an expression of r and i in computation. Even then, it's incorrect because in many situations (e.g. when there are negative cash flows) it will compute the wrong set of IRR's. The expression is just plain wrong, Genius.
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