Basic idea: valuation is discounted cash flows, aggregate value is a fake economy
Question: what happens if you kill a couple close-in periods of cash flows, take some time to ramp up, discount rates rise over the interval, there is a 20% extinction rate, and no new entrants?
- 40 periods
- 10 independent cash flows
- $100 cf
- discount 3-->6% over first 10 per, then steady
- first 2 periods of cf get vaporized
- next 7 periods ramp up 0 --> 100; linear
- 2 cash flows go extinct
aggregate difference: -49%
None of these assumptions are remotely realistic except maybe the cash flow, rates and extinction
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