BS Plan A Plan B 2 Cash Flow in One Year 3 Discount Rate 4 Cash Flow Growth Rate

Question

BS Plan A Plan B 2 Cash Flow in One Year 3 Discount Rate 4 Cash Flow Growth Rate 5 Present Value of Growine Perpetuity 4,600.00 Cash Flow at Time 1 Cash Flow at Time 2 Cash Flow at Time 3 Cash Flaw at Time 4 Cash Flaw at Time S Cash Flow at Time 6 Cash Flow at Time 7 Cash Flow at Time Cash Flow at Time 9 Cash Flaw at Time 10 Present Value of First 1 Cash Flows Present Value of First 2 Cash Flows Present Value of First 3 Cash Flows Present Value of First 4 Cash Flaws Present Value of First S Cash Flows Present Value of First 6 Cash Flows Present Value of First 7 Cash Flows Present Value of First 8 Cash Flows Present Value of First 9 Cash Flows Present Value of First 10 Cash Flows 11.82% 0.00% 15.62% 3.30% 10 Plan B 13 14 15 16 Plan A Plan B Present Value of Cash Flow at Time 1 Present Value of Cash Flow at Time 2 Present Value of Cash Flow at Time 3 Present Value of Cash Flow at Time 4 Present Value of Cash Flow at Time 5 Present Value of Cash Flow at Time 6 Present Value of Cash Flow at Time 7 Present Value of Cash Flow at Time 8 Present Value of Cash Flow at Time 9 Present Value of Cash Flow at Time 10 Present Value of All Cash Flows After Time 1 Present Value of All Cash Flows After Time 2 Present Value of All Cash Flows After Time 3 Present Value of All Cash Flows After Time 4 Present Value of All Cash Flows After TimeS Present Valuc of All Cash Flows After Time6 Present Value of All Cash Flows After Time7 Present Value of All Cash Flows After Time8 Present Value of All Cash Flows After Time 9 Present Value of All Cash Flows After Time 10 20

Explanation / Answer

Plan A

Present value of the perpetuity = 4,600/0.1182 = 38,917.09

Plan B

Present value of the growing perpetuity = 4,600/(0.1562 - 0.038) = 38,917.09

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