A car manufacturer enters into a contract for 25-years lease of warehouse rental that adjusts annually for the expected rate of inflation over the life of the contract. This is an example of growing perpetuity.

Question

Quizplus · Accepted Answer

A growing perpetuity is a series of cash flows that grow at a constant rate indefinitely, whereas a 25-year lease, even with adjustments for inflation, has a finite term and thus does not meet the criteria for a perpetuity.

A Car Manufacturer Enters into a Contract for 25-Years Lease