Value of a perpetual 100 dollar cash stream at 16%
Question
A business throws off $100 of cash every year, indefinitely, for as long as you own it. If you require a yield on your investment, what is the most you should pay for it? Round to the nearest dollar.
Short answer
$625. A level perpetuity is worth its annual cash flow divided by the required yield, so .
Adapted from QuantQuestions.io; question and answer rewritten by SelfMadeQuant.com.
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