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BUS 207 (37)

# 207__

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School
Department
Course
BUS 207
Professor
Semester
Summer

Description
Present value of indefinitely lived assets PV (perpetuity) =CFi (i is the interest). Examples of such an asset include perpetual bonds and preferred stocks. I.e. the value of a perpetual bond that pays the owner \$100 at the end of each year when the interest rate is fixed at 5 percent is given by PV=1000.05=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 firms physical, human, and intangible assets. In particular, if pi(0) is the firms current level of profits, then pi(1) is the next years profit, and so on. Therefore the value of the firm is: PV(firm)=pi(0)+pi(1)(1+i)+pi(2)(1+i)^2+pi(3)(1+i)^3+..... In other words
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