The formula to calculate the present value of a growing perpetuity is:
\[ \text{PV} = \frac{\text{D}}{\text{r} - \text{g}} \]
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:
\[ \text{PV} = \frac{100}{0.08 - 0.03} = \frac{100}{0.05} = 2000 \]
The Present Value of the Growing Perpetuity is $2000.
Let's assume the following values:
Using the formula:
\[ \text{PV} = \frac{150}{0.10 - 0.04} = \frac{150}{0.06} = 2500 \]
The Present Value of the Growing Perpetuity is $2500.
