BUS 207 : 207__

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 207
• Professor: Allan Matadeen

Document Summary

Examples of such an asset include perpetual bonds and preferred stocks. I. e. the value of a perpetual bond that pays the owner at the end of each year when the interest rate is fixed at 5 percent is given by pv=100/0. 05=2000. Present value analysis is also useful in determine the value of the firm, since the value of the firm is the present value of the stream of profits (cash flow) generated by the firm"s physical, human, and intangible assets. In particular, if pi(0) is the firm"s current level of profits, then pi(1) is the next year"s profit, and so on. In other words, the value of the firm today is the present value of its current and future profits. Notice that the value of the firm takes into account the long-term impact of managerial decisions on profits. So the goal of the firm is to maximize the present value of current and future profits.