Question
An investment asset is expected to yield a stream of cash payments indefinitely (= forever). The first payment will be $600, and each payment will
An investment asset is expected to yield a stream of cash payments indefinitely (= forever). The first payment will be $600, and each payment will grow at a constant rate thereafter. The discount for the investment is 10%. Suppose that the value of the investment today (t = 0) is estimated to be $10,000. A. If the first payment is due next year (t = 1), what is the growth rate of cash flows? B. If the first payment is due five years later (t = 5), what is the growth rate of cash flows? Note that the present value of a perpetuity is at one period before the first payment.
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