medium · Principles of Finance time-value-of-money
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?
- The negative growth rate must instead be added to the discount rate within the numerator of the formula.
- The growing perpetuity model becomes mathematically invalid whenever growth turns negative.
- The present value will always be higher than that of a comparable level perpetuity.
- The present value will be lower than that of a level perpetuity with the same initial cash flow.
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