Sparkling Water, Inc., expects to sell 6.5 million bottles of drinking water each year in perpetuity. This

Question:

Sparkling Water, Inc., expects to sell 6.5 million bottles of drinking water each year in perpetuity. This year, each bottle will sell for $1.03 in real terms and will cost $.77 in real terms. Sales income and costs occur at year-end. Revenues will rise at a real rate of 2 percent annually, while real costs will rise at a real rate of 1.5 percent annually. The real discount rate is 6 percent. The corporate tax rate is 34 percent. What is the company worth today?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...