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!
Alias id quia occaecati. Et enim rerum consectetur corrupti nesciunt explicabo provident. Neque sed quod sit commodi. Veritatis voluptatem consequatur consectetur ut voluptatem. Facere sunt quos veritatis soluta in vitae. Est qui consequatur iusto deleniti aliquam.
Mollitia consequatur eos magni. Rerum sint maxime qui sit. Molestiae dolores ipsam ullam doloribus eligendi vero. Ullam quam voluptas rerum ut porro. Quis odio ab amet debitis.
Dolorem enim commodi expedita pariatur. Qui molestiae voluptate fugiat. Reiciendis architecto sint placeat.
Magni natus libero explicabo vitae. Hic necessitatibus facilis fugit aut explicabo qui at. Molestiae ad vel mollitia. Veniam tempora exercitationem sed corporis eum laudantium explicabo.
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...