So, we have this simple formula for computing the current value of any perpetual stream of revenue. If the value is

V = R/I

Let's use this formula to estimate what profits are for New York cabbies if they're willing to pay over $200,000 for a medallion? Let's suppose that interest rates are about 5% and are expected to be for the foreseeable future and that no other factors are involved. We have:

200,000 = R/0.05 0.05 x 200,000 = R 10,000 = RCopyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved