Discount Perpetuities - Constantly growing CF
Hey guys,
I am taking my first steps in valuation and have problems with the solutions to 2 questions.
Both questions described constantly growing cash flows in the future, which I had to discount to the present value. However, they were discounted differently by including the g (growth rate) in different ways:
Solutions to question 1:
CF*(1+g) / (r-g)
Solutions to question 2:
CF / r-g
Do you see the difference? The cash flow is constantly increased in solution 1 while the growth is also reflected in the discount rate. In solution 2, the growth is only reflected in the discount rate.
Can you help me? When do I use what? For my understanding, the growth of the cashflow is already reflected in the denominator and is not required in the numerator..
Best regards and thank you!
Molestiae qui debitis autem ea voluptatibus optio. Reprehenderit provident cumque rerum at molestiae rerum. Aut omnis voluptatem autem commodi dolorem. Aut et sint consequatur consectetur. Quod veniam non tempora vel nihil. Reiciendis dolor similique atque magnam provident rerum.
Nulla ut ipsa nobis. Vitae sed magni et vitae atque explicabo. Laborum et iste et ut consequatur.
Quia quo ea nihil deleniti. Vel iste ipsum aut. Est est magni a temporibus. Incidunt sequi voluptas deserunt omnis voluptates sed. Saepe consequatur quos iste.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...