# An error in examiner answer? F9 2011 jun Q1 (b)

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This topic contains 6 replies, has 3 voices, and was last updated by  artem 2 years, 4 months ago.

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• artem
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To calculate PV of perpetuity cash inflow from year 5
2,308,000 x 1·03 x (1 – 0·3))/0·12
But it seems we should use
2308*1,03*(1-0,3)/(0,12-0,03)
isn’t it?

aimanaljafri
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I think the formula for perpetuity is: cf per annum/ interest rate. Hence you only divide it by the interest rate

artem
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Yes, it is. But when there is a constant growth of 3%? Is it like dividend growth model? The whole PAT may be used to pay dividends, so it looks similar to DGM for me. May be I don’t understand something.

aimanaljafri
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I don’t understand perpetuity either. I just hope it doesn’t come up. ATM I’m concentrating on the theory

katherineyan
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2,308,000is the CF of year 4
Then 2,308,000X1.03 is the CF of year 5, the perpetuity is from the year 5 onwards.
(1-0.3) is the after tax rate.

Any problems?

katherineyan
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work to nearest \$1000.

artem
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Problem in denominator. Why it is 0,12 but not 0,12-0,03

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