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Hello Sir ,
How the calculate the theoretical value ?
Not sure why the answer is 2m/0.08=25mThanks
The value of the company is arrived at by discounting the cash flows at the WACC.
The discount factor for a perpetuity is 1/r, where r is the discount rate.
You really should watch the free lectures – they are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well. (And if necessary, the relevant F2 lectures, because discounting a perpetuity is revision of F2).
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