Question

You are the CEO of a firm manufacturing cell phone cases. You just announced that this...

You are the CEO of a firm manufacturing cell phone cases. You just announced that this year’s earnings are $1 million. Analysts predict your earnings will grow at 10% each year for the next two years and then earnings growth will slow to 3% per year and will continue growing at 3% in perpetuity. Assuming an opportunity cost of capital of 7%, what is the present value of your future (not counting this year) projected earnings?

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