What is the present value of a perpetual stream of cash flows that pays $8 comma 0008,000 at the end of year one and the annual cash flows grow at a rate of 44 % per year indefinitely, if the appropriate discount rate is 1515 %? What if the appropriate discount rate is 1313 %?

Instructions are listed below.

Explanation:

Giving the following information:

Cash flows = $8,000

Grow at a rate of 4 % per year indefinitely.

We need to find the present value using the following formula:

Present Value = periodic payment / (i - g)

i = interest rate

g = growth rate

A) Interest rate = 15%

PV = 8,000 / (0.15 - 0.04) = $72,727.27

B) i = 13%

PV = 8,000 / (0.13 - 0.04) = $88,889