Com 13 corporate finance present value and

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Unformatted text preview: allow for an easy calculation of the present value through the use of short-cut formulas. Download free ebooks at 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...
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