Notethatthepresentvaluesarecomputedassumingthatthe
cash flowson investmentsareperpetuities.Inaddition, the
present values of the economic value added by the
investments made in future years are discounted to the
present,using thecost ofcapital.To illustrate, thepresent
valueoftheeconomicvalueaddedbyinvestmentsmadeat
thebeginningofyear 2 isdiscountedbackayear.Thevalue
ofthefirm,whichis$170.85million,canbewrittenusingthe
firm value equation.
Thevalueofexistingassetsistherefore$150millionandthe
value of future growth opportunities is $20.85 million.
Anotherwayofpresentingtheseresultsisintermsofmarket
valueadded(MVA).Themarketvalueadded,inthiscase,is
thedifferencebetweenthefirmvalueof$170.85millionand
the capital invested of $100 million, which yields $70.85
million. This value will be positive only if the return on
capital is greater than the cost of capital and will be an