Question

What is the present value of a growing perpetuity that makes a payment of $100 in the first year, which thereafter grows at 3% per year

Answer 1

present value = $2500

Step-by-step explanation:

given data

Dividend D = $100

grows g = 3% per year

solution

we consider here discount rate that is ke = 7%

so now we apply here present value formula that is

present value =
`(D)/(ke-g)` ..............................1

put here value and we will get

present value =
`(100)/(0.07-0.03)`

solve it and we will get

present value = $2500