Example

• Before Risk Reduction:

  • Present Value of $1 billion annual after tax income for 30-yr. horizon / .09 required rate of return = $10.27 billion.

• After Risk Reduction:

  • Present Value of $.95 billion annual after tax income for 30-yr. horizon / .085 required rate of return = $10.61 billion.

• Decision: Yes, proceed with risk reduction.

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