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is the value of expected profits or cash flows, discounted back to the present at an appropriate interest rate.2

This model can be expressed as follows:

Value of the Firm = Present Value of Expected Future Profits

Here, n1, n2, . . . nn represent expected profits in each year, t, and i is the appropriate interest, or discount, rate. The final form for Equation 1.1 is simply a shorthand expression in which sigma (X) stands for "sum up" or "add together." The term n

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