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If you want a corporate finance answer... Assuming you can go on forever, you are a perpetuity with annual growth g = 79.58% = ~80% (1.05^12 - 1), coupon c = $
by davidwparker 16y ago
If you want a corporate finance answer...
Assuming you can go on forever, you are a perpetuity with annual growth g = 79.58% = ~80% (1.05^12 - 1), coupon c = $200,000, and some value of discount rate r, which you could otherwise get with your money. For our example, we'll suppose you can invest somewhere and get a 10% return.
The formula for a growing perpetuity = PV = c/(r - g), where PV is the present value. This formula only works if the growth rate is less than the discount rate... following this rule, we have to use a higher discount rate, so we'll assume you can get 100% somewhere else (let me know if you have a place where you can do this.)
If you take the series of system payments, then you would have:
PV = c/(1 + r) + c(1 + g)/((1 + r)^2) + ... + c((1 + g)^n)/((1 + r)^n)
which ultimately equals PV = c/(r - g)
PV = 200,000 / (1.00 - .80) = $1,000,000
So $1,000,000 is the amount someone would be willing to pay for all the present values of all future earnings on the perpetuity, assuming you have an r = 100%.
If g > r, then the growing perpetuity would (theoretically) have an infinite value.
edit: added value = $1,000,000 assuming r = 100%