The appropriate discount rate in this problem is 15% annually. Assume that the firms earnings are $250,000
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Question:
The appropriate discount rate in this problem is 15% annually. Assume that the firms earnings are $250,000 in year 1 (that is, exactly 1 year from now; now is time 0) and the firm will exist forever. In year 2 the earnings will grow by 5%. In year 3 the earnings will grow by 10% (so the earnings in year 3 will be 1.05 1.10 $250, 000). In year 4 the earnings will grow by 5% and so on: the earnings will grow by 5% in all even years and by 10% in all odd years. What is the value of the firm?
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