Question

If the present value of a growing perpetuity is 214, the required rate of return is 10%, and growth rate is 3%, what is the cash flow in year 1? (Round to the nearest whole number).

Answer 1

The cash flow in year 1 is $15.

What is the cash flow in year 1?

A growing perpetuity increases continuously and indefinitely.

Cash flow = present value x (rate of return - growth rate)

214 x (10% - 3%)

214 x 0.07 = $15

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