Page 53 - FM Integrated WorkBook STUDENT 2018-19

Investment appraisal – Discounted cash flow techniques

4.2 Discounting perpetuities

The present value of a perpetuity can be found as:

PV = Annual cash flow × perpetuity factor

The perpetuity factor can be calculated as:

1
Perpetuity factor = ——
r

For perpetuities whose cash value grows at a constant rate, the perpetuity factor that
should be used is:

1
Growing perpetuity factor = ——
r – g

43