Page 47 - Microsoft Word - 00 ACCA F9 IWB prelims 2017.docx
P. 47
Investment appraisal – Discounted cash flow techniques
Annuities and perpetuities
An annuity is a constant annual cash flow for a number of years.
A perpetuity is an annual cash flow that occurs forever.
4.1 Discounting annuities
The present value of an annuity can be found as:
PV = Annual cash flow × annuity factor (AF)
The annuity factor is the name given to the sum of the individual discount factors
covering the period of the annuity and has the formula:
-n
1− (1 + r)
Annuity factor = ————————
r
Annuity factors can also be found in the exam on annuity tables which will be
provided.
39
