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Hi Moffat,
Pls could you teach me the principles of answering the question below?A project requires an initial investment of $1,000 and will generate cash inflows of $1,200 per annum in perpetuity commencing in one year’s time.
What is the NPV of the project at an interest rate of 20% per year?
Expecting your reply…. Thks a lot
Have you watched the free lecture on this?
This is a very basic question and it is a waste of time to be attempting questions until you have studied the subject – either from our lectures or from a study text.
The discount factor for a perpetuity is 1/r, where r is the interest rate (here r is 0.2)
For an explanation of why this is the case you should watch the lecture.
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