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Hello
The technical article on business valuation dated 18/08/2015 says that delayed perpetuity is calculated using (1/(r-g)*previous DF)…… However in the BPP book it says that it is calculated using 1/r-g.
Which one is to use???
Thank you
The BPP book does not say that!
The dividend valuation formula (which is what this is) gives the PV of any inflating perpetuity starting in 1 years time.
If the perpetuity starts later the it gives a PV later, which then needs discounting to get a PV now.So, for example, if the perpetuity starts in 4 years time, then since this is 3 years later than the normal 1 years time, the formula will give a PV in 3 years time. You therefore then need to discount it for 3 years in order to get back to a PV now.
this is odd i can see 2 posts but cant see the answer when i open the post….I can only see mine….I am logged in
i just noticed what they did. They just split the formula into 2 parts.
Thank you.
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