ABSTRACT
NOI (t + 1) = NOI (t)+ h(t)I (t) where h(t) is the rate of return earned on productive investments made at time t. Use the above result to show that
V (0) = NOI (1) pU
+ ∞∑ t=1
I (t)[h(t)− pU ] pU (1+ pU )t
What are the implications of the above formula for the firm’s dividend policy and the impact of changing levels of investment on the value of the firm?
