For this question, why is the value of equity at time zero equal to the present value of the cash distributions to equity (i.e. dividends/repurchases)? Anyone have any idea?

If you see all the income which they are earning is being distributed BACK to debtholders and shareholders. Nothing is being reinvested in the firm.

But why then is the value of equity not equal to the assets-liabilities = $77,973 at time 0? I still don’t get why we need to discount the dividends paid out to the shareholders…

2010CFACFA Wrote: ------------------------------------------------------- > But why then is the value of equity not equal to > the assets-liabilities = $77,973 at time 0? I > still don’t get why we need to discount the > dividends paid out to the shareholders… That is book value. The one given in the book is market value.

Ah ok, got it. Thanks!