easy · Principles of Finance

If an asset's present value is calculated using a growing perpetuity model, and the growth rate (g) is negative, which of the following is true?

1. The growth rate must be added to the discount rate in the numerator.
2. The model is invalid for negative growth rates.
3. The present value will be higher than that of a level perpetuity.
4. The present value will be lower than that of a level perpetuity with the same initial cash flow.

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