1. THE OPTIMISTIC ENTREPRENEUR Eddie Carvalho is a successful entrepreneur who h

1. THE OPTIMISTIC ENTREPRENEUR Eddie Carvalho is a successful entrepreneur who has started a small business after selling off his internet firm for millions. He hires you as a financial consultant to go over 3 possible projects. After speaking to Eddie, you get the feeling he loves to take huge risks based on his previous business success. You are worried that if he rushes this decision, it could cause pain to his team by wasting their time and energy. What got Eddie here, might not get him to where he wants to go in the future. His employees mention that Eddie is getting angry often these days, has a big temper and doesn’t like people telling him he is wrong. You don’t want to get on his bad side, early in this venture as you are depending on this consulting job to lead to larger income in the future as the company grows. To see how Eddie measures the expected result and risk, you ask Eddie to write up the possible outcomes of these 3 projects and to give his estimate of the $ result and possibility of success. Eddie takes 10 minutes and then writes his guesstimates on the board. Eddie says he is 99.9% certain his numbers are right and asks you to do a finance evaluation of his number and let him know what you think. PROJECT 1 PROJECT 2 PROJECT 3 RESULT Possibility This Will Happen RESULT Possibility RESULT Possibility Okay $80,000 40% $50,000 20% $90,000 30% Good $200,000 50% $80,000 40% $160,000 50% Great! $400,000 10% 120,000 40% $200,000 20% SOLVE and ANALYZE: 2A. Show Eddie what the risk is in terms of the 3 possible projects he is interested in doing and rank the projects based on his numbers. (15 marks) 2B. You notice that Eddie tends to think fast, is overly optimistic of his success and might be increasing the cash gain outcomes and also the probabilities that this will happen. You are also worried that you might lose this consulting job if you disagree with him early in the project. Decide how you will tell Eddie that he might be overly optimistic with his numbers. Give Eddie strategic financial advice based on what you have learned in this course and at the same time will not cause him to get angry and end up terminating your consulting contract. (10 marks)

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