Page 130 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Chapter 10

A perpetuity is an annual cash flow that occurs forever.

The present value (PV) of an annuity can therefore quickly be found:

PV = Annual cash flow/r

or
1
PV = cash flow × –
r
With r = cost of capital

Illustrations and further practice

Now read illustration ‘Perpetuities’ from Chapter 10.

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