An owner of the building except that it is ready for rent and except the building will be 80milion how much should he sell it now if he is borrow at 18% interests rate?
What if the business starts to grow @ 5% from the current year and up to infinite. In that case, my PV would be arriving at -1 year. How to deal with this? Let's assume at Year 0 business sales has been 100.
Sorry for they very late reply! Usually (if not always) the perpetual growth rate is less than the discount rate. The growth rate can be higher than the discount rate in initial phases, but eventually it converges to a more "normal" (smaller) industry growth rate closer to the rate of inflation. That said, the PV of perpetuity does fail when growth rate is greater than the discount rate. In those cases, the answer is actually infinity (not negative), because the rate of growth in cash flows is greater than the rate at which you are reducing their value by discounting it. So you keep adding higher and higher numbers forever -> the series doesn't converge, it keeps growing.
Thanks a lot👍👍 Saw so many videos on Growing perpetuity...Liked this one cuz u make it conceptually clear👍
great Video. Thanks
Thank you😭😭📈📈
hi Atif, thanks your the videos. why you have not posted the growing annuities? thanks!
Thanks for the suggestion. I'll make a video on that too.
An owner of the building except that it is ready for rent and except the building will be 80milion how much should he sell it now if he is borrow at 18% interests rate?
What if the business starts to grow @ 5% from the current year and up to infinite. In that case, my PV would be arriving at -1 year. How to deal with this? Let's assume at Year 0 business sales has been 100.
Sorry for they very late reply! Usually (if not always) the perpetual growth rate is less than the discount rate. The growth rate can be higher than the discount rate in initial phases, but eventually it converges to a more "normal" (smaller) industry growth rate closer to the rate of inflation. That said, the PV of perpetuity does fail when growth rate is greater than the discount rate. In those cases, the answer is actually infinity (not negative), because the rate of growth in cash flows is greater than the rate at which you are reducing their value by discounting it. So you keep adding higher and higher numbers forever -> the series doesn't converge, it keeps growing.