What is the present value of a perpetual stream of cash flows that pays 50,000 at the end of year one and then grows a rate of 7% per year indefinitely? the rate of interest used to discount the cash flow is 11%?
The present value is $1,171,171.17. The value of the undiscounted cash flows at period 1 total $1,300,000.00, which is the $50,000.00 first cash flow, and the present value of a perpetuity beginning in period 2 of $1,250,000.00. The $1,300,000.00 then discounted back to time zero is $1,171,171.17.