Brain Teasers & Mental Math
A cash flow of $100 arrives next year and grows 3% forever. At an 8% discount rate, what is it worth today?
Model answer
$2,000.
Growing perpetuity (Gordon growth): PV = C₁ / (r − g) = 100 / (0.08 − 0.03) = 100 / 0.05 = $2,000.
Two gotchas interviewers probe: (1) the numerator must be NEXT year's cash flow…
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