Partnership Valuation Calculator

Formula

The formula to calculate the Partnership Valuation (PV) is:

\[ \text{PV} = \frac{\text{CF}}{\text{r} - \text{g}} \]

Where:

PV – The partnership valuation ($).
CF – The annual cash flow generated by the partnership ($).
r – The required rate of return (decimal).
g – The growth rate of the cash flow (decimal).

Definition

Partnership Valuation (PV): The process of determining the economic value of a business partnership.
Annual Cash Flow (CF): The annual cash flow generated by the partnership ($).
Required Rate of Return (r): The required rate of return (decimal).
Growth Rate of Cash Flow (g): The growth rate of the cash flow (decimal).

Example

Let's say the annual cash flow (CF) is $100,000, the required rate of return (r) is 0.08, and the growth rate of the cash flow (g) is 0.03. Using the formula:

\[ \text{PV} = \frac{100000}{0.08 - 0.03} = 2000000 \, \text{\$} \]

So, the partnership valuation is $2,000,000.