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Dear John,
Based on Chrysos Co, the estimated values as per appendix 1(option 2) and appendix 3 are calculated without discounting it back to present value with the cost of capital.
On the other hand, based on Vogel Co part (c), the value of Ngede Co is calculated using the same way as Chrysos Co, but it discount it back to present value by multiplying (1.1^-1), note: the cost of capital is 10%.
So when actually should we discount it back to present value?
Multiplying by 1/r discounts a perpetuity that starts in 1 years time.
In Chrysos is does start in 1 years time.
In Vogel, the growth changes after the first year. So the flow in 1 years time is discounted separately. The remaining flows are from 2 to infinity, so they start 1 year later – at time 2 instead of time 1 – and therefore the result needs discounting for the extra year.
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