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I’m currently working on Question 3 (c) of June 2014. I couldn’t understand how the examiner got the figure of $9.14m used in calculating the cash flows from year 2 to infinity.
My assumption was the cash flows of year 1 of $8.31m will grow to infinity from year 2 onwards.
Please advise.
Thanks.
David
8.31 is not the cash flow at time 1 – it is the present value of the flow.
The cash flow at time 1 is 7.62 x 1.2 = 9.14
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