Response to the following problem:
Growing Perpetuities
Marcus Boruc has been working on a new hands-free telephone that clips into your ear. The new gadget has now been cleared for manufacture and development. Marcus anticipates his first annual cash flow from the phone to be €200,000, received two years from today. Subsequent annual cash flows will grow at 5 per cent in perpetuity.
What is the present value of the phone if the discount rate is 10 per cent?