Question

Calculate the present value of a growing perpetuity with the following information (round off the
answer to the nearest rand):
Cash flow at the end of the first year R60 000
Growth rate (g) 10%
Opportunity cost 20%

Answer 1

Present value=Year 1 cashflow÷(opportunity cost-growth rate).

PV=R60, OOO÷(20%-10%)

PV=R60, OOO÷10%

PV=R60,000÷0.01

PV=R600,000