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Looking at multiple periods, the decline in value for the second period will come on top of the decline for the first, the third on

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Looking at multiple periods, the decline in value for the second period will come on top of the decline for the first, the third on top of the second, and so forth. Accordingly, if the discount rate is expressed as the rate for decline in value for one period, it must be compounded. For example, the present value of $X under the annual discount rate of r X will be: for the first (1+r) year, (1+r)2 (1+r)3 In this regard, it should also be remembered that if the cashflow is to continue so on. X forever (a "perpetuity" 5), its present value will equal Q7: Regarding a "perpetuity," (UL5), the share of a company can be regarded as a form of perpetuity, because it entitles the holder to a stream of dividends which is expected to continue for the foreseeable future. If one follows this thinking, the fair value for a share of a company which pays out four dollars dividends every year should equal $ (a) (round to the nearest unit), if the discount rate is ten percent. If in this case, the dividend is to grow by two percent every year, the fair value should equal $ (b) (round to the nearest unit)

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