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Consider a business that is expected to continue indefinitely. Today is Year 0. The businesss projected cash flow for Year 1 (which would arrive exactly
Consider a business that is expected to continue indefinitely. Today is Year 0. The businesss projected cash flow for Year 1 (which would arrive exactly 1 year from today) is 40 in real dollars that have the same purchasing power as Year 0 dollars. Expected inflation is 5% per year. Suppose the expected nominal growth rate for the businesss cash flows is 4% per year and the nominal discount rate for the businesss cash flows is 13%. What is the value of the business today?
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