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15 every year for ever? The interest rate is 10percent.,…,Growing Perpetuity,A growing stream of cash flows that lasts forever,…,Growing Perpetuity: Example,The expected dividend next year is $1.30, and dividends are expected to grow at 5% forever. If the discount rate is 10%, what is the value of this promised dividend stream?,…,4.5 What Is a Firm Worth?,Conceptually, a firm should be worth the present value of the firm’s cash flows. The tricky part is determining the size, timing, and risk of those cash flows.,Quick Quiz,What is PVIF, FVIF, PVIFA and FVIFA? What is the Net Present Value of an investment? What is an EAR, and how is it computed from APR? What is a perpetuity? An annuity?,。CH4: Discounted Cash Flow Valuation,Key Concepts and Skills,Be able to compute the future value and present value of a single cash flow or series of cash flows Understand NPV of an investment Know APR and EAR Understand annuities and perpetuities,Chapter Outline,4.1 Valuation: The OnePeriod Case 4.2 The Multiperiod Case 4.3 Compounding Periods 4.4 Simplifications 4.5 What Is a Firm Worth?,Don is trying to sell a piece of land in Alaska. Yesterday, he was offered $10,000 for the property. He was about ready to accept the offer when another individual offered him $11,424. However, the second offer was to be paid a year from now. Don has satisfied himself that both buyers are honest and financially solvent, so he has no fear that the offer he selects will fall through. Which offer should Don choose? Mike, Don’s finan