Wise University expects to receive $100 next year from a new donor.They also expect this amount to increase by 3 percent annually and to continue forever.Which formula will correctly compute the current value of this donation at a discount rate of 13 percent?

Question

Quizplus · Accepted Answer

The correct formula to compute the current value of a perpetuity that grows at a constant rate is given by the present value of a growing perpetuity formula, $PV = \frac{C}{r - g}$, where $C$ is the initial cash flow, $r$ is the discount rate, and $g$ is the growth rate. In this case, $C = $100$, $r = 0.13$, and $g = 0.03$, making the correct formula $PV = \frac{$100}{0.13 - 0.03}$.

Wise University Expects to Receive $100 Next Year from a New