Show That a Firm with Earnings of $10,000 a Year

question 2

Essay

Show that a firm with earnings of $10,000 a year in perpetuity would be better off paying all earnings in dividends rather than investing 25% of its earnings (also in perpetuity) in projects earning 14% if its discount rate is 15%.

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Definitions:

Incarnation

The embodiment of a deity or spirit in some earthly form, particularly used in the context of the belief in Jesus Christ as God made flesh.

Holy Spirit

In Christianity, the third person of the Holy Trinity, considered the spirit of God active in the world, inspiring and guiding believers.

Immanence Of God

The concept that God is present and active within the creation and the universe, transcending yet being within all things.

Deist Conception

The belief in a God who created the universe but does not intervene in it or alter its laws with supernatural events.