Question regarding the "magical" formula. Hope you can help me out.
The most important formula in finance seems to be Present Value = (Cash Flow)/(Discount Rate - Growth Rate)
I would be interested in WHY this is the case. Is there a derivation? I think it might have sth. to do with an unlimited geometrical series. I am very interested in the actual derivation of this kind of stuff. Hope you can help me out!
Edit: We also use this formula when calculating cost of equity with the Gordon Dividend Discount Model. We rearrange it, which is very cool.
Push.
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