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Good day sir,
I jus want to clarify, while calculating free cash flow, for calculating the value to equity, shouldnt we discount the perpetuity to present value?
Yes, and that is what the answer has done. However you can only use 1/r is it is a constant cash flow. Here it is not constant and so the first 4 years have to be discounted individually, and then there is an inflating perpetuity from time 5 onwards so they have discounted using the dividend valuation formula.
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