The present value of a growing perpetuity,with cash flow C1 occurring one year from now,is given by:
[C₁/(r - g)],where r > g.

Question

The present value of a growing perpetuity,with cash flow C1 occurring one year from now,is given by: [C₁/(r - g)],where r > g.

Quizplus · Accepted Answer

This formula is correct for calculating the present value of a growing perpetuity, where C1 is the cash flow in the first year and the cash flow grows at a constant rate of g indefinitely. The formula is derived from the formula for the present value of a perpetuity, where the cash flow remains constant, by incorporating the growth rate.

The Present Value of a Growing Perpetuity,with Cash Flow C1