Problem

Inflation and Company Value Sparkling Water, Inc., expects to sell 2.1 million bottles of...

Inflation and Company Value Sparkling Water, Inc., expects to sell 2.1 million bottles of drinking water each year in perpetuity. This year each bottle will sell for $1.25 in real terms and will cost $.75 in real terms. Sales income and costs occur at year-end. Revenues will rise at a real rate of 6 percent annually, while real costs will rise at a real rate of 5 percent annually. The real discount rate is 10 percent. The corporate tax rate is 34 percent. What is Sparkling worth today?

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