S Curves

[Marc Shields]

I am trying to do a project where I calculate the net present value of brand earnings as determined.

To do this, I need to calculate a discount value which I know how to calculate it conceptually but not actually.

I have to calculate an S curve using a subjectively derived brand risk index score (a number between 1 and 100 where 100 is the lowest risk and 1 the highest)This established the brand risk profile which is inversely related to the cost of capital (high risk profile has a low cost of capital, a low profile a high cost). I know the lowest cost of capital is about 5% (risk free) and the average wieghted cost of capital (for an industry) but I dont know the highest cost...( I could guess at the max however).

Can anyone help me out!!!



Only thing is, I am not sure how to calculate it.


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[Bob Bridges]

Sounds to me like you're asking an algebra question rather than an Excel
question, Marc; is that right? NPV is easy enough, but only if you can
calculate (well, estimate) the quantity of each of the future earnings.

Why do you say the capital cost varies inversely with the risk? Are you
saying the capital investment is the same regardless, so the capital LOSS (so
to speak) varies with the estimated risk? Because it seems to me that two
investments can have the same probability of failure and yet one require more
capital investment than the other.

If your inputs are only 1) capital investment, 2) risk of failure and 3)
estimated future earnings, period by period, the calculating net earnings
each period should be easy enough if you know how quickly the original
investment should be recouped, and the NPV of the remainder can be calculated
from that. Or am I totally misunderstanding the problem?

 

[Marc Shields]

Bob,

Thanks for the response. Actually, I am not sure about the calculus part. I have sound statistics but for the rest?.! Let me set this up better for you..

First, the NVP is not the problem for me but thanks for the great explanation?.

Maybe I can explain this better

I will determine value between 1 and 100 for a company?s marketing program risk..

This is determined subjectively through expert research?

The hard part?.

I want to use the S curve to calculate a ?precise? cost of capital or rather

We know that cost of capital is inversely related to risk

We know the risk free cost and the average cost of capital (and I can guess the highest cost)

What I want to see the theoretical relative cost of capital between marketing plan risk.

To do this, other marketing experts have converted the INDEX SCORE and the Cost of Capital to an S curve to show the relative risk to each marketing plan.

Is this better?

Sincerly greatful for your response!

Marc




Bob Bridges wrote:

Sounds to me like you are asking an algebra question rather than an
22-Jan-10

Sounds to me like you are asking an algebra question rather than an Exce
question, Marc; is that right? NPV is easy enough, but only if you ca
calculate (well, estimate) the quantity of each of the future earnings

Why do you say the capital cost varies inversely with the risk? Are yo
saying the capital investment is the same regardless, so the capital LOSS (s
to speak) varies with the estimated risk? Because it seems to me that tw
investments can have the same probability of failure and yet one require mor
capital investment than the other

If your inputs are only 1) capital investment, 2) risk of failure and 3
estimated future earnings, period by period, the calculating net earning
each period should be easy enough if you know how quickly the origina
investment should be recouped, and the NPV of the remainder can be calculate
from that. Or am I totally misunderstanding the problem

--- "Marc Shields" wrote:

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