Question
6. You are running a hot Internet company. Analysts predict that its earnings will grow at 30% per year for the next five years. After
6. You are running a hot Internet company. Analysts predict that its earnings will grow at 30% per year for the next five years. After that, as competition increases, earnings growth is expected to slow to 2% per year and continue at that level forever. Your company has just announced earnings of $1,000,000. What is the present value of all future earnings if the interest rate is 8%? (Assume all cash flows occur at the end of the year.)
Consider two mutually exclusive projects with the following cash flows:
| Project | C/F0 | C/F1 | C/F2 | C/F3 | C/F4 | C/F5 | C/F6 |
| A | $(41,215) | $12,500 | $14,000 | $16,500 | $18,000 | 20,000 | N/A |
| B | $(46,775) | $15,000 | $15,000 | $15,000 | $15,000 | $15,000 | $15,000 |
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Intermediate Financial Theory
Authors: Jean-Pierre Danthine, John B. Donaldson
2nd Edition
0123693802, 978-0123693808
