What is the present value of $1 billion paid at the end of every year in perpetuity, assuming a rate of return of 10% and a constant growth rate of 4%?

Expert Solution

P0 = CF0(1+g)/(r - g)

Where:

CF0(1+g) = Cash flows at t = 0 , plus growth

g = Constant growth rate

r = rate of return

P0 = 1(1.04)/(0.10 - 0.04)

P0 = 1.04/0.06 = $17.333333 billions

jeff jeffy answered 2 years ago

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