A fertiliser manufacturing company enters into a contract with a county parks and recreation department that calls for the company to sell 10 per cent more of its best lawn feed every year for the next five years. If they also agree to maintain the total price as constant over the contract period, this growth in revenue is an example of a growing perpetuity.

Question

Quizplus · Accepted Answer

A growing perpetuity is a financial concept where the cash flows increase at a constant rate forever. In this scenario, while the revenue will increase by 10% every year for five years, it will not continue to increase at that rate forever. Therefore, this is not an example of a growing perpetuity.

A Fertiliser Manufacturing Company Enters into a Contract with a County