Hi,
in the venture capital section the schweser notes say you adjust the discount by dividing the discount rate by the 1 minus the probability of failure. I’m finding this conceptually difficult to grasp and can never remember it.
i find it easier to PV the terminal value by the discount rate (unadjusted) then times it by the probability of success for the period (so for a success rate of 70% over five years, it would be the PV times 0.7^5)
Is this correct or have i missed something basic?
in the venture capital section the schweser notes say you adjust the discount by dividing the discount rate by the 1 minus the probability of failure. I’m finding this conceptually difficult to grasp and can never remember it.
i find it easier to PV the terminal value by the discount rate (unadjusted) then times it by the probability of success for the period (so for a success rate of 70% over five years, it would be the PV times 0.7^5)
Is this correct or have i missed something basic?