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 What is the present value of a perpetual stream of cash flows that pays ​$1,500 at...

 What is the present value of a perpetual stream of cash flows that pays ​$1,500 at the end of year one and the annual cash flows grow at a rate of 3​% per year​ indefinitely, if the appropriate discount rate is 14​%? What if the appropriate discount rate is 12​%?

A.  If the appropriate discount rate is 14​%, the present value of the growing perpetuity is?

​ (Round to the nearest​ cent.)

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Answer #1

Calculation of PV (Present Value ) Of PERPETUAL GROWING CASH FLOWS :

(using Geometric Progression i.e )

we get,

*The above Given formulae of PV can be used directly also.

[where,

PV = Present Value of growing Perpetuity

CF = Cash Flow at the end of year 1

r = Discount rate

g = Growth rate ]

A. AT DISCOUNT RATE = 14%

PV = 13636.36363636 or = $ 13636.36

B. AT DISCOUNT RATE = 12%

PV = 16,666.666666 or = $ 16,666.67

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