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Q 5.37. Ination is 2% per year; the interest rate is 8% per year. Your perpetuity project has cash ows that grow at 1% faster
Q 5.37. Ination is 2% per year; the interest rate is 8% per year. Your perpetuity project has cash ows that grow at 1% faster than ination forever; starting with $20 next yeah 1. What is the real interest rate, both accurate (the \"1+\" version) and approximate (the subtraction version)? 2. What is the correct project PV? 3. What would you get if you grew a perpetuity project of $20 by the real growth rate of 1%, and then discounted it at the nominal cost of capital? 4. What would you get if you grew a perpetuity project of $20 by the nominal growth rate of 3%, and then discounted it at the real cost of capital? Performing either of the latter two calculations is not an uncommon mistake in practice
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