Com 13 corporate finance present value and

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: allow for an easy calculation of the present value through the use of short-cut formulas. Download free ebooks at bookboon.com 13 Corporate Finance Present value and opportunity cost of capital Perpetuity Security with a constant cash flow that is (theoretically) received forever. The present value of a perpetuity can be derived from the annual return, r, which equals the constant cash flow, C, divided by the present value (PV) of the perpetuity: r C PV Solving for PV yields: (7) PV of perpetuity C r Thus, the present value of a perpetuity is given by the constant cash flow, C, divided by the discount rate, r. In case the cash flow of the perpetuity is growing at a constant rate rather than being constant, the present value formula is slightly changed. To understand how, consider the general present value formula: PV C3 C1 C2   " 2 (1  r ) (1  r ) (1  r ) 3 Turning a challenge into a learning curve. Just another day at the office for a high performer. Please click the advert Accenture Boot Camp – your toughest test yet...
View Full Document

Ask a homework question - tutors are online