Perpetuity and Growing Perpetuity Calculator
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- Last Updated: Sunday, 18 November 2018
This calculator provides the user with the present value of a perpetuity, or growing perpetuity. The calculator only requires four inputs: the present value type, cash flow amount, discount rate, and expected growth rate. Using this information, the calculator provides the present value of the cash flow.
Calculator Definitions
The variables used in our online calculator are defined in detail below, including how to interpret the results.
Present Value Type
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Using the drop down box, the user can select one of two cash flow types: A Growing Perpetuity is one that has a cash flow that grows over time and continues “forever.” A Perpetuity is defined as an annuity without end, or a cash flow that continues indefinitely.
Dollar Amount of Cash Flow ($)
This is the stream of cash derived from an investment, such as an annuity, that continues forever. It is the starting value of the cash flow in the case of a growing perpetuity.
Discount Rate (%)
This is the rate at which future cash flows are discounted to a present value. For example, if you want to discount the future value by 10% each time period, then the discount rate is 10%. As the Discount Rate approaches zero, the Present Value of Cash Flow becomes infinitely large. That is to say, the perpetual stream of money received in the future is not significantly reduced. Therefore, it is more valuable as the discount rate decreases.
Expected Growth Rate (%)
This is the rate at which future cash flows are expected to grow each year. For example, a $1,000 cash flow in year 1, with an Expected Growth Rate of 10%, would provide a cash flow of $1,100 in year 2. This value is only used if the Present Value Type selected is Growing Perpetuity. The value in this cell is ignored in the Perpetuity calculation.
Present Value of Cash Flow ($)
This is the present value of the investment, which takes into consideration the time value of money. This value discounts the Dollar Amount of Cash Flow by the Discount Rate (interest rate) specified.
Perpetuity and Growing Perpetuity Calculator
Disclaimer: These online calculators are made available and meant to be used as a screening tool for the investor. The accuracy of these calculations is not guaranteed nor is its applicability to your individual circumstances. You should always obtain personal advice from qualified professionals.