Tax-Sheltered Growing Annuity

“For investors, I would argue this is a “tax-sheltered growing annuity.” If a company can borrow money and buy cable systems with an interest rate that is less than the growth rate of the cash flow, the present value of that stream is technically infinite—as long you reinvest the capital into acquiring still more cable systems.”

“Like most cable operators, we invested a great deal of profit in upgrading our wired networks. By doing so, we could make more off the wires: more robust, reliable networks cut down on truck rolls, saved money on amplifiers, and allowed more channels on a system. Not to mention, it was immediately depreciated for tax purposes. This means the investment in the infrastructure was deducted from earnings right away, reducing our taxes on any profit, even though the benefits of the investment would last for years. It thereby provided a great incentive to keep investing in our own systems to make them better.”