Perpetuity Calculator
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Perpetuity Calculator
This perpetuity calculator shows you how to compute the present value of perpetuity and perpetuity with growth.
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Perpetuity in the financial system is a situation where a stream of cash flow payments continues indefinitely or is an annuity that has no end. In valuation analysis, perpetuities are used to find the present value of a company’s future projected cash flow stream and the company’s terminal value. Essentially, a perpetuity is a series of cash flows that keep paying out forever.
Although the total value of a perpetuity is infinite, it has a limited present value. The present value of an infinite stream of cash flow is calculated by adding up the discounted values of each annuity and the decrease of the discounted annuity value in each period until it reaches close to zero. The finite present value of a perpetuity is used by an analyst to determine the exact value of the company if it continues to perform at the same rate.
Present value of perpetuity formula
PV = C / R
where:
PV = Present value
C = Amount of continuous cash payment
r = Interest rate or yield
Perpetuity with growth formula
PV = C / (r – g)
where:
PV = Present value
C = Amount of continuous cash payment
r = Interest rate or yield
r = Growth Rate
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In order to become a great financial analyst, here are some more questions and answers for you to discover:
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- What is Sensitivity Analysis?
- How Do You Value a Business?
