Studying Risk Effect in Evaluating the Financing Methods of New Technology-Based Firms

Abstract

Innovation & Prosperity Fund (IPfund) in Iran as a governmental organization aims to develop new technology-based firms (NTBF) by its available resources through financing these firms. The innovative projects which refer to IPfund for financing are in a stage which can receive both fixed rate facilities and partnership in the projects, i.e. profit loss sharing (PLS). Since this fund must protect its initial and real value of its capital against inflation rate, therefore, this study aims to examine the suitable financing methods with considering risk. For this purpose we study on risk assessment models to see how to use risk adjusted net present value for knowledge based projects. On this basis, the NPV of a project has been analyzed by taking into account the risk variables (sales revenue and the cost of fixed investment) and using Monte Carlo simulation. The results indicate that in most cases for a project, the risk adjusted NPV in partnership scenario is more than the other scenario. In addition to, partnership in projects which demand for industrial production facilities is preferable for the IPfund than projects calling for working capital.

Keywords

• risk analysis
• risk adjusted net present value
• monte carlo simulation
• fixed rate facilities
• partnership
• investment evaluation.