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Given the formula for present value of future cash flows... P V 0 = C F 0 + C F 1 ( 1 + r
Given the formula for present value of future cash flows...
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Show how you get from the above formula dealing with a finite
amount of cash flows to the formula for a perpetuity.
Hints:
In a perpetuity, all cash flows are equal.
Think about what parameter in the first formula goes to infinity.
You can ignore the first term CF
If proving mathematically, you'll need to use geometric series.
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