| | | Let's try
$ 1 000 in pretax earning (per share or not isn't making a difference here)
the same pretax earnings for 10 years (I don't think growth is also making a difference in my demo)
Long term Corporate Bond Rate for the year: 4 % or 0,04
A) Discounting for 10 years
($ 1 000 X (1-(1,04^-10))) / 0,04 = $ 8 110,90
B) Your formula
$ 1 000 / 0,04 = $ 25 000
B) Discounting for 200 years
($ 1 000 X (1-(1,04^-200))) / 0,04 = $ 24 990,20
3,8 or 4 % is making a bigger difference for your formula than for 10 years.
If we use 3,8 we get
A) a difference of $ 81,36 or 1 % higher
B) a difference of $ 1 315,80 or 5,26 % higher
I'm sure we are arguing on insignificant details but maybe we can learn something.
Good Investing
WIll |
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