In the case of a growing perpetuity, the present value of the cash flow is given by: [C1/(r - g)] where r g.

Question

In the case of a growing perpetuity, the present value of the cash flow is given by: [C1/(r - g)] where r > g.

Quizplus · Accepted Answer

This formula is used to calculate the present value of a growing perpetuity, where C1 is the cash flow in the first period, r is the discount rate, and g is the growth rate. It is valid only when r is greater than g, as otherwise the formula would result in a negative present value.

In the Case of a Growing Perpetuity, the Present Value