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Politics : Ask Michael Burke

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To: Knighty Tin who wrote (37352)	11/23/1998 11:25:00 PM
From: Richard Nehrboss	Read Replies (1) of 132070

Mike, et al... Need a hand here. When looking at valuation from a net present value of discounted cash flows, I have a problem. Let's take an example that has been tossed out on the Buffet thread. Let's assume (only if all the Chinese start drinking soda) that KO can grow 15% for ten years and then 5% thereafter. If we use a dollar (just as a baseline to come up with a PE) as this years earnings, excel spits out a 15 year NPV (with a 9% discount rate) of $21.24. What I don't understand, is after 10 years, the NPV is $13.59. For years 11-15 at 5% which is less than the discount rate, shouldn't it go down? When I extend this (which I believe you're supposed to do) out for many many years, we approach a npv of dis. cash flow of $58 and change. If the above were totally accurate (which they aren't), is this correct simple methodology? Thanks Richard

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