Homework Answers
Answer:
PV of perpetual cash flow= PMT/r Where PMT= Periodical Cash Flow and r= Discount Rate for the period
Given, PMT= $100, r=11%
Value of the perpetual CFs of $100 per year, after 5 years from now when it commences =$100/11% = $909.090909
With discounting at annual rests, Present Value of the above is obtained as $909.090909/(1+r)n
Where r= Discount Rate (11%) and n=time till commencement of cash flows, ie., 5 years
Therefore, PV of CF = $909.090909/ (1+0.11)^5 = 909.090909/1.685058 = $539.501207
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