In: Finance
A company in a mature business with a constant dividend might be valued using the formula for a Perpetuity. A Perpetuity ____
A has no Future Value and an infinite Present Value
B has a finite Future Value and an infinite Present Value
C increases in present value amount as the required rate of return (discount rate) increases
D increases in value as the required rate of return (discount rate) decreases
Perpetuity is Cash flow/required rate of return
If the rate of return will decrease the value of perpetuity will increase.
The answer is-
D increases in value as the required rate of return (discount rate) decreases