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Reference no: EM132219703

Managerial Economics: Using formula that the book points to, how did they arrive to the answer in bold below?

If the interest rate is 8%, the expected growth rate of the firm for the foreseeable future is 6% and the firms current profits are $60 million, the present value of the firm's current and future earnings is $3240 million.

From the reading: Present value analysis is also useful in determining the value of a firm since the value of a firm is the present value of the stream of profits (cash flows) generated by the firm's physical, human, and intangible assets. In particular, if π0 is the firm's current level of profits, π1 is next year's profit, and so on, then the value of the firm is

PVFirm = π0 + π1/(1+i) + π2/(1+i)^2 + π3/(1+i)^3 + ?

Reference no: EM132219703

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