Question

Calculate the present value of a growing perpetuity with the following information (round off the answer to the nearest rand)
Cash flow at the end of the first year R60 000
Growth rate(g) 10%
Opportunity cost 20%

Answer 1

Present value of a growing perpetuity $= \frac{Cash \; flow \; at \; the \; end \; of \; the \; first \; year}{(Opportunity \; cost - Growth \; rate)}$

$= \frac{60000}{(0.2 – 0.1)} =R\; 600000$