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You are a company that faces increasing levels of competition. Analysts predict that its earnings will decrease at 2% per year for the next five
You are a company that faces increasing levels of competition. Analysts predict that its earnings will decrease at 2% per year for the next five years. After that, earnings will decrease at a rate of 1% 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 appropriate discount rate is 5%? (Assume all cash flows occur at the end of the year).
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