Net Present Value: What Future Income Is Worth Today - Deepstash

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Net Present Value: What Future Income Is Worth Today

Net Present Value: What Future Income Is Worth Today

You’re joining a startup and getting stock options, and the founder says, “This company is going to be worth $1 billion, and I’m giving you 0.1% of the company; therefore, you’re getting $1 million worth of stock.”

The founder is negotiating based on what it’s going to be worth in the future. You have to figure out what it’s worth today by applying a discount rate, or an interest rate, that accounts for the massive risk startups face. 

You’ll end up with the amount the company is actually worth today. That’s the price at which a venture capitalist would invest in the company.

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MORE IDEAS FROM THE SAME ARTICLE

Negotiations are won by whoever cares less. Negotiation is about not wanting it too badly. If you want something too badly, the other person can extract more value from you.

Once you’ve been in a good relationship with somebody for a while whether it’s business or romantic life gets a lot easier because you know that person’s got your back. 

Consumer surplus is the excess value you get from something when you pay less than you were willing to pay.

Price discrimination means you can charge people based on their propensity to pay.

An externality is where there’s an additional cost imposed by whatever product is being produced or consumed, that’s not accounted for in the price of the product.

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It is a game theory by Thomas Schelling. It’s about multiplayer games where people respond based on what they think the other person’s response will be.

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