CFI Financial Modeling and Valuation Analyst (FMVA) Practice Exam 2026 - Free FMVA Practice Questions and Study Guide

Growing perpetuity valuation uses the idea that cash flows keep increasing forever at rate g while they are discounted at rate r. The present value is the next period’s cash flow divided by the difference r minus g, provided r > g. This comes from summing the infinite geometric series of discounted cash flows: CF1/(1+r) + CF1(1+g)/(1+r)^2 + CF1(1+g)^2/(1+r)^3 + … which simplifies to CF1/(r - g).

So the correct form is cash flow divided by (discount rate minus growth rate). The other forms mis-handle growth: multiplying by g and dividing by r mixes growth into scale incorrectly, adding r and g in the denominator is not how the series behaves, and dividing by r alone ignores growth entirely.