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But if this is royalties from sales, wouldn't the amount theoretically rise with inflation, especially for a mass market consumer product like Listerine? So I d
by pc86 5y ago
But if this is royalties from sales, wouldn't the amount theoretically rise with inflation, especially for a mass market consumer product like Listerine? So I don't see how if you hold on to this royalty (easy to do), and Listerine sales don't tank (out of your control), wouldn't your earnings be more or less constant in real terms?
- ghaff 5y agoI was answering a specific question--how you evaluate. Yes, in this case, I would assume royalties would track roughly with inflation, i.e. future cash flows will increase although there are other reasons to discount beyond that number. Even absent inflation you can earn some money by banking it. And there's also risk of "stuff" happening as you move into the future.
- bombcar 5y agoDCF still works if you assume 0% inflation, as even without inflation tomorrow dollars are worth less than today dollars.
- jamiek88 5y ago> even without inflation tomorrow dollars are worth less than today dollars. Interesting and a little counterintuitive but I guess it has to do with the time value of the dollar. As in you own the dollar longer thus it has more value?
- ghaff 5y agoEssentially I’ll never lend you money if i won’t earn anything from it.
- riskneutral 5y ago> As in you own the dollar longer thus it has more value? No. As in, having $10 million cash in hand today has more value than having a guarantee that you will be paid $10 million 10 years from now. Think about it, would you rather have $10 million now, or in 10 years? Which is more valuable to you?
- bombcar 5y agoExactly this. I’ll gladly pay you Tuesday for a hamburger today.
- mactrey 5y agoTwo ways to think about why I'd rather have $1,000 today than $1,000 a year from now: - I could invest the money today and have more than $1,000 next year - I might die before next year and never get to enjoy the money