Question

Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called:

A) an annuity due.
B) a growing perpetuity.
C) an ordinary annuity.
D) a growing annuity.

Answer 1

The cash flow stream from the small business venture is a growing perpetuity, as it increases by 15% every year for the next 25 years.

Step-by-step explanation:

In this case, the cash flows from the small business venture are increasing by 15 percent every year for the next 25 years. This type of cash flow stream is called a growing perpetuity.

A growing perpetuity is a series of cash flows that grow at a constant rate indefinitely. It is similar to a regular perpetuity, which is a series of cash flows that continue indefinitely at a constant rate, but with the added feature of growth.

So, the correct answer is B) a growing perpetuity.