The formula to calculate the present value of a growing perpetuity is:
PV=Dr−g
Where:
A growing perpetuity is a series of periodic payments that grow at a proportionate rate and continue indefinitely. It is a type of perpetuity, which is an infinite series of payments. The concept is often used in finance to determine the present value of a company’s cash flows, dividends, or other financial metrics that are expected to grow at a constant rate over an indefinite period. The formula for calculating the present value of a growing perpetuity takes into account the initial payment, the growth rate, and the discount rate.
Let's assume the following values:
Using the formula:
PV=1000.08−0.03=1000.05=2000
The Present Value of the Growing Perpetuity is $2000.
Let's assume the following values:
Using the formula:
PV=1500.10−0.04=1500.06=2500
The Present Value of the Growing Perpetuity is $2500.